What is a Certificate of Deposit or CD?

Howdy Wall St. Willy! I heard that interest rates in CDs are low lately. But what is a CD anyway?

Well, a CD is a Certificate of Deposit. It is a place where you keep your money to get interest from the bank that you kept it in for the amount of money that you kept.

The interest rate is decided before you keep your money in and you keep it there for a certain amount of time. After that you get your money that your kept in it plus the interest.

And, can I withdraw my money early?

Yes, you can withdraw your money early, before the term of the CD or how long you’re supposed to keep it for.

But you’ll face a penalty and you might also not get any of the interest that you had accumulated. So, try not to invest in a CD or Certificate of Deposit if you think that you might need to withdraw your money early.

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And, does the price of the CD go up and down like a stock or a bond?

No, it does not because it is not actively traded on the market.

But then why should I invest in a CD?

Well, you should invest in a CD because it is a good short-term and mid-term investment where you have no risk of losing your money but where you can earn some interest.

You are guaranteed to get your money back plus interest if you keep your money in the CD for the agreed upon amount of time.

Well, thank you very much for explaining that. Now it’s a lot simpler.

You are welcome, Sooper Cooper. Remember, Finance is Your Friend!

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