Certificates of Deposit

Certificates of deposit (CDs) or time deposits are bank accounts that require the account holder to make a deposit and agree to leave funds in the account for a specific amount of time; anywhere from three months to six years. As the money becomes inaccessible to the account holder, they are rewarded by the bank with a higher interest rate, with the rate increasing as the duration increases. There is usually a substantial penalty for early withdrawal, although some financial institutions allow account holders to withdraw interest, without affecting the principal.