These are, basically, a bank account that charges you to withdraw funds.
You deposit money and the bank will guarantee you a specified interest rate, this enables the bank to better predict what will be left in the account.
For you, this means you will get a higher interest rate then savings account while still having funds guaranteed.
Keep in mind that inflations averages around 3% per year (when the economy is working properly) so locking money up in a CD could result in buying power losses.
These are similar to bonds, but bonds typically have much higher interest rates. The large difference is that you can withdraw funds from a CD whereas with bonds you are locked in. An alternative is a Bond ETF, which has great liquidity but may loose value in the short term.
What are Certificates of Deposit and how do they work?
CDs for beginners:
Article by Jacob K Lloyd
Published: 22 Aug 2015
Last updated: 22 Aug 2015
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