Certificate of Deposit (CD)
A CD is a bank deposit that locks your money at a fixed APY for a set term, from a few months to several years. It typically pays more than a savings account in exchange for an early withdrawal penalty of several months of interest.
A CD is the simplest fixed-income product a consumer can buy: deposit once, earn a locked rate, collect at maturity. Because the quoted APY must already include compounding (Truth in Savings Act), comparing CDs of the same term is a straight rate comparison, and a 12-month CD delivers exactly its APY. FDIC or NCUA insurance covers up to $250,000 per depositor, per institution, per ownership category, so within limits the rate is the whole story.
The trade is liquidity. Breaking the lock costs a penalty, commonly three to twelve months of interest, which can bite into principal on a young CD. That is why savers ladder CDs across staggered maturities or split money between a CD and a penalty-free high-yield savings account. Run the maturity math in the CD calculator and compare it against the high-yield savings calculator.
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Related terms: Annual Percentage Yield (APY) , High-Yield Savings Account (HYSA) , Emergency Fund
Last updated . Part of the FinExplained finance glossary .