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|This article is a part of Wikinvest's Personal Finance section and Guide to Investing. Please contribute or edit to improve it.|
The chart to the left is for 6 month CDs.
A certificate of deposit, or CD, is an interest-bearing deposit account. However, unlike a savings deposit account in which the interest rate may fluctuate, a CD investment is guaranteed a specific rate of return.
The interest rate on a CD is higher than on a savings account because the investor, in exchange for receiving a guaranteed rate of return, commits to a specified period of time (the "term") during which he will not withdraw his investment. Common terms for CDs range from 30 days to 5 years. With most CDs, withdrawing any of the investment before the end of the term (the "maturity date") will incur an often substantial early withdrawal penalty.
A CD will not give you substantial returns compared to most other types of investments. Investopedia explains succinctly: "CDs are generally considered short-term, low-risk, interest-paying storage for capital until a more profitable investment can be found." CDs offer steady interest earnings, but not high returns.
However, with opt-up and bump offers, be aware that you won't necessarily get a bump up as high as the interest rate has actually risen. Also, the minimum investment for these accounts is often higher than with traditional CDs.
Most help aritecls on the web are inaccurate or incoherent. Not this!
When your CD maturity date nears, the bank or credit union will notify you. You can then do one of two things: