A certificate of deposit, or CD, is a savings product where you give a bank money for a fixed period of time in exchange for a guaranteed interest rate. You agree not to withdraw the money until the term ends, usually three months to five years. CDs typically offer higher interest rates than regular savings accounts.
You buy a one-year CD for $5,000 at 5% APY. You cannot withdraw this money for 12 months. After one year, the bank gives you back $5,250 (your original $5,000 plus $250 in interest). If you need the money before one year ends, you may have to pay a penalty.
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