Certificate of Deposit (CD)

Certificate Deposit or CD is a special type of savings account offered by banks or credit unions. You have to keep your funds on CD for a certain period of time which depends on the bank to avoid penalties.

How Does a Certificate of Deposit (CD) Work?

Certificate of Deposit also known as time deposit, too. As we said above, you have to keep your assets in CD for a certain period of time. The end of that period is known as the maturity date. If you withdraw your money before the maturity date, the size of the penalty will vary greatly. You may learn what the penalty is from the relevant banks and credit unions before purchasing a CD.

However, some banks and credit unions might make invalidate the penalties of withdrawing before the maturity date only if you have kept your money in CD for a minimum period of time.

The advantage of CDs in the financial market is that they provide a much more risk-free passive income than investing in bonds or similar volatile investment objects. The longer the user keeps his money in the bank, the higher the interest he gets. Of course, this method will make money slower than other trading methods.