CD (Certificate of Deposit).

In plain English

A Certificate of Deposit (CD) is a savings product where you commit to leaving money with the bank for a specific term, typically 3 months to 5 years. In return, the bank guarantees an interest rate for the entire term. If you withdraw early, you pay an early-withdrawal penalty (often 3-6 months of interest). CDs are FDIC-insured up to $250,000 per depositor per bank.

01Why it matters

CDs are useful when you have money you definitely don't need for a known stretch of time and you want guaranteed interest with zero risk. They're particularly attractive when interest rates are high and you expect them to fall, locking in 5% for 5 years is valuable if rates drop to 3% next year. They're less attractive when rates are rising or when you might need the money.

02The math, step by step

You put $10,000 into a 12-month CD at 4.75% APY. After 12 months, you have $10,475, guaranteed, regardless of what the broader market did. If you'd needed the money after 6 months, the early-withdrawal penalty might be roughly 3 months of interest, or about $119, so you'd get back $10,000 plus partial interest minus penalty. Worth it for predictable timing; not worth it if your timeline is uncertain.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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