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** This lesson is generated with AI assistance and approved by Danny Nelson. This lesson will communicate the essence of the topic for now until Danny can create a full lesson. **
A certificate of deposit (CD) is a type of savings account offered by banks and credit unions where you deposit a fixed amount of money for a predetermined period, ranging from a few months to several years, in exchange for a guaranteed interest rate.
The interest rate on a CD is typically higher than that of a standard savings account because the funds are locked in and cannot be withdrawn without penalty until the maturity date.
Upon maturity, you receive your original deposit plus the accrued interest, providing a low-risk way to grow savings for those who can afford to set the money aside.
Early withdrawal from a CD usually results in forfeiting a portion of the interest earned or paying a penalty fee, which discourages premature access.