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Certificates of Deposit (CDs)
A certificate of deposit (CD) is a special type of deposit account with a financial institution that typically offers a higher rate of interest than a regular savings account. Unlike other investments, CDs feature federal deposit insurance up to $100,000.*
Here’s how CDs work: When you purchase a CD, you invest a fixed sum of money for fixed period of time – six months, one year, five years, or more – and, in exchange, the issuing bank pays you interest, typically at regular intervals. When you cash in or redeem your CD, you receive the money you originally invested plus any accrued interest. But if you redeem your CD before it matures, you may have to pay an "early withdrawal" penalty or forfeit a portion of the interest you earned.
Before you consider purchasing a CD from your financial institution or brokerage firm, make sure you fully understand all of its terms. Carefully read the disclosure statements, including any fine print. Ask questions – and demand answers – before you invest.
*NOTE: On October 3, 2008, President George W. Bush signed the Emergency Economic Stabilization Act of 2008, which temporarily raises the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor (for bank and credit union depositors). The temporary increase in deposit insurance coverage became effective upon the President's signature. The legislation provides that the basic deposit insurance limit will return to $100,000 after December 31, 2009. "This temporary increase in deposit insurance coverage should go far to help consumers maintain confidence in the banking system and the marketplace," said FDIC Chairman Sheila C. Bair. "And clearly the public's confidence is key to a healthy and stable economy." Read more at: http://www.fdic.gov/news/news/financial/2008/fil08102a.html
Additional Information:
- Certificates of Deposit: Tips for Savers (FDIC)
- Your Insured Deposits - Banks (FDIC)
- Your Insured Funds Brochure - Credit Unions (NCUA)
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