Briarstone Network · The Brief
What Are Certificates of Deposit (CDs)?
A Certificate of Deposit, often called a CD, is one of the simplest ways banks allow people to earn interest on their money.
Composed by Briarstone Network
Summary
Many people keep their savings in a regular bank account, but banks also offer Certificates of Deposit (CDs) as another way to store money. A CD pays higher interest, but in exchange you agree not to touch the money for a set period of time.
What a CD is
A Certificate of Deposit (CD) is a savings product offered by banks where you deposit money for a fixed period of time. In return, the bank pays you interest on that money. Think of it as lending your money to the bank for a set amount of time, and they reward you with a predictable return.
How it works
When you open a CD, you choose how long the money will stay in the account. This could be a few months, one year, or even several years. During that time, the bank pays interest at a fixed rate. The longer the term, the higher the interest rate is usually.
The tradeoff
The main downside is that the money is locked in. If you withdraw it before the term ends, the bank will usually charge a penalty. Because of that, CDs are best for money you know you will not need right away.
Reference
“Do not save what is left after spending, but spend what is left after saving.”
— Warren Buffett