What is a "Certificate of Deposit" (CD)?

What is a "Certificate of Deposit" (CD)?

Mitchell Freedman, CPA/PFS (CEO, MFAC Financial Advisors) gives expert video advice on: What kinds of bank accounts should I have?; How do I open a bank account?; How can I compare banks and the services they offer? and more...

A Certificate of Deposit (CD) is where you, as a depositor, lend money to the bank for a period of time and the bank will pay you interest for the period of time that they have it. The Certificate of Deposit (CD) can be a valuable financial tool because it generally pays a higher interest rate than a savings account or a money market account. The downside of it is that you have to keep it in there for the pre-prescribed term; otherwise, there will be a penalty if you have to draw it down.