Certificates of Deposit

A certificate of deposit or CD is, in the United States refers to a time deposit, a familiar financial product, commonly offered to consumers by banks, thrift institutions, and credit unions.

CDs are like saving accounts and are insured by FDIC for banks and by the NCUA for credit unions. So the CDs are considered as the risk free money in the bank. CDs are different from savings accounts because the CD has fixed term and generally a fixed rate of interest. Fixed term refers to the fixed time period, it may be of three months, six months or on to five years. It is intended that the CD be held until maturity.

Mostly institutions like banks etc. grant higher interest rates on money deposited for any fixed time or on agreed-on term deposited money than they grant on accounts from which money can be withdrawn any time on demand. Fixed rates are common, but some institutions offer CDs with various forms of variable rates as well.

A few general rules of thumb for interest rates are:

Brokered Cds

Many brokerage firms – known as "deposit brokers" – offer Cds. These brokerage firms can sometimes negotiate a higher rate of interest for a CD if promised to bring higher amount of deposits to the institution.

Callable Cds

A callable CD is similar to a traditional CD, except that the bank reserves the right to "call" the investment. After the initial non-callable period, the bank can buy (call) back the CD. Callable CDs pay a premium interest rate. Their interest rates are managed by bank by selling callable CDs. On the call date, the banks determine if it is cheaper to replace the investment or leave it outstanding.