Glossary term
Certificate of Deposit (CD)
A certificate of deposit is a savings account that pays a fixed rate for a set term, such as six months or five years, in exchange for leaving your money untouched until it matures. CDs at insured banks and credit unions are covered by federal deposit insurance up to the limit, and early withdrawals usually trigger a penalty.
Updated October 17, 2026 · Editorial Team
How Certificate of Deposit (CD) works in practice
You choose a term and deposit a lump sum. The bank locks in the rate, and interest compounds on the schedule it discloses, often monthly or daily. At maturity you can withdraw the money, move it, or let it renew, usually into a new CD of the same length at the rate then offered.
Deposit $10,000 in a two-year CD at 4.25% APY. After year one the balance is $10,425.00; after year two it is $10,000 × 1.0425² = $10,868.06. That is $868.06 of interest for leaving the money alone, assuming interest stays in the CD.
CDs suit money you will not need for a known period, such as a down payment fund for next year. The trade-off is flexibility: if rates rise, you are locked in, and if you need the cash early you pay a penalty. A CD ladder is one way to balance the two.
Certificate of Deposit (CD): quick questions
Are CDs safe?
CDs at FDIC-insured banks or NCUA-insured credit unions are protected up to $250,000 per depositor, per institution, per ownership category.
What happens when a CD matures?
You usually get a short window to withdraw or move the money. If you do nothing, many CDs renew automatically.
Can I add money to a CD?
Most CDs accept only the opening deposit. Some special products allow additions; check the terms.
Sources
- Certificates of deposit (CDs) — U.S. Securities and Exchange Commission (Investor.gov). Accessed October 17, 2026.
- Deposit Insurance — Federal Deposit Insurance Corporation. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations. See our methodology.
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