Certificates of Deposit
You can buy Certificates of Deposit (CDs) at banks. They're called CDs because when you deposit your money, the bank gives you a certificate telling you –
Certificates of Deposit pay slightly higher interest rates than savings accounts. There are many kinds of CDs. They pay different rates, and they require different lengths of time you must keep your money in them. So if you decide to look into CDs, you have lots of choices.
Bank CDs are FDIC-insured. Just like a savings account, your money is protected. To learn about how safety and interest rates affect each other, look at the Risk/Reward Pyramid.
Money you invest in a CD is less liquid than the money you put in a savings account. With a CD, you are not free to take your money out whenever you want. You must invest your money for a specific time: 3 months, 6 months, 1 year, 5 years. The time all depends on the CD you choose. Yes, you can withdraw your money earlier, but then you must pay a penalty.
The longer the CD's deposit time, the higher the interest rate. Another word for interest rate is return.
Interest rates on bank CDs are fixed – the rate cannot change for as long as you own the CD. Typically, a CD rewards you with compound interest. That means the interest you've already earned also earns interest. Your money really multiplies. Check out the Compounding Calculator.
To invest in a CD, you have to invest a certain amount – the higher this amount, the more interest the CD will pay.