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By: Ikedi Ani-okoye

How Does a Certificate of Deposit Work?

CD stands for Certificate of Deposit. This is a savings account given to you by a number of banks. The concept is basically, that you are loaning the bank money in return for a high interest rate on your money. The bank sets a minimum limit you have to put in and they tell you when you can take it out.

CDs compared to a regular Savings Account

The two clear differences of a savings account and certificate of deposit, is the flexibility you have with your money. A normal savings account usually gives full access where as a CD does not.

Savings accounts will let you access and use your funds when it suits you. You can also add to your funds, interest is usually lower because of this.

The CD option means that you can take out money from the account until the fixed period you have agreed upon has elapsed. This will result in a higher return on your investment.

Getting a CD

Finding a long term CD to sign up to is likely to give you the best returns. This has to be balanced with the amount of money you are willing to invest also. Obviously the more money you can put in the account the more money you will make in the long term.

Advantages of a CD

The biggest advantage that a CD will give you is security. Compared to stocks and shares or some other investment a CD is insured. Which means you won't make a loss if the bank files for bankruptcy.