What is a CD? How does a CD work?

A certificate of deposit (CD) is a type of account offered by banks and credit unions that pay interest on a deposit amount for a set period of time. These accounts typically pay a guaranteed rate of return. CDs usually offer a better rate of return than traditional savings accounts, although the gap isn't as wide as it once was. 

When you open a CD, you have to select a term. The term is the length of time that the money stays stashed in the account. For example, if you open a CD with a one-year term, you're making a promise to the bank that you'll keep your money in the account for one year. After the CD's term ends, the CD matures and you either withdraw the money or renew the CD.

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