What is a certificate of deposit (CD)?

A certificate of deposit (CD) is best described as a savings account with a fixed interest rate and maturity date. This financial product is offered by banks and credit unions and typically requires the account holder to deposit a specific amount of money for a predetermined period, which can range from a few months to several years.

During this time, the holder agrees not to withdraw the funds, and in return, they receive a higher interest rate than a traditional savings account. The fixed interest rate means that the earnings from the CD are predictable and guaranteed for the duration of the investment, making it a secure choice for individuals who wish to earn interest on their savings while minimizing risk.

The other options do not accurately describe a CD. A checking account is designed for everyday transactions and often has a low interest rate, if any, while a credit card is a form of borrowing and not related to savings accounts. An account that earns no interest does not meet the definition of a CD, which is specifically designed to generate interest.