Certificate of Deposit (CD)
What does it mean
A Certificate of Deposit (CD) is a financial instrument offered by banks or other financial institutions that allows individuals to invest a fixed amount of money for a predetermined period, ranging from a few months to several years. In return for locking in their funds for this specific term, investors receive a fixed interest rate that is typically higher than the interest rates on regular savings or checking accounts. The interest rate remains constant throughout the CD's term, providing a predictable return on the investment.
Why does it matter
From a banker's perspective, certificates of deposit are a form of time deposit, meaning the customer commits to keeping the funds in the account for the agreed-upon duration. CDs are considered a stable but more expensive source of funding because the funds are less likely to be withdrawn compared to more liquid accounts. Offering a variety of CD terms and interest rates allows banks to attract a diverse range of depositors and manage their overall funding structure effectively.
Other Relevant Terms
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Greetings! I'm Clay Sharkey, and there is nothing I like more than assisting others in achieving their goals. I firmly believe that by enhancing a banker's understanding of their customer's' business, they can provide superior service. This superior service, in turn, leads to stronger relationships for the bank, improved performance for the businesses, and better experiences for our communities. Win-win-win.
