Certificate of Deposit (CD)

A CD is a savings product with a commitment attached. You agree to leave a lump sum untouched for a set term — anywhere from a few months to five years — and the bank pays a fixed rate in return for knowing the money will stay put.

That fixed rate is the whole appeal. A high-yield savings account can cut its yield the week after you open it; a CD cannot. The cost of that certainty is access: withdrawing before maturity triggers a penalty, commonly three to twelve months of interest depending on the term.

CDs carry the same federal deposit insurance as any other bank or credit union account — $250,000 per depositor, per institution, per ownership category — so the risk is entirely about timing, not solvency.

A CD ladder softens the access problem. Splitting a sum across CDs maturing at staggered intervals means part of the money frees up regularly while the rest keeps earning the longer-term rate.

The decision usually turns on where rates are heading. Locking a term makes sense when rates look likely to fall; a savings account is better when they may rise or when you might need the cash. An emergency fund should not sit in a CD for that second reason.