A certificate of deposit (CD) is a time-locked savings product offered by banks. You deposit a fixed amount for a set period (3 months to 5 years), and the bank pays you a guaranteed interest rate — typically higher than a regular savings account.
Example: You deposit $10,000 in a 1-year CD at 5% APY. After 12 months, you get $10,500. The catch: if you withdraw early, you pay a penalty — usually 3-6 months' worth of interest. CDs reward you for committing your money.
CDs are FDIC-insured up to $250,000 in the US, making them virtually risk-free. Savvy investors use a "CD ladder" strategy — spreading money across CDs with different maturities so some amount matures regularly while still earning higher rates. In India, the equivalent is a Fixed Deposit (FD).