Certificate of Deposit (CD)
Definition
A savings product where you agree to lend money to a bank for a fixed period (3 months to 5 years) at a set interest rate. You can't withdraw early without a penalty. CDs are FDIC insured and very safe.
Why It Matters
CDs offer higher interest rates than savings accounts because banks know they'll have your money. They're perfect for money you won't need soon. Rates are typically 4-5% APY now, significantly better than regular savings.
Example
Put $10,000 in a 1-year CD at 4.8% APY. At the end of year, you have $10,480. You locked in the rate for the year. If rates drop to 2%, you're glad you locked in higher. If rates rise to 6%, you'll be disappointed.