Certificate of deposit

A certificate of deposit (CD) is a type of savings account that pays interest on a lump sum for a certain period of time. CDs differ from savings accounts in that the money must be kept untouched for the duration of the term to avoid penalty fees or lost interest. As an incentive for lost liquidity, CDs often pay higher interest rates than savings accounts.

Almost all consumer financial institutions provide CDs, however each bank decides which terms to give, how much higher the return is relative to the bank's savings and money market products, and what penalties apply for early withdrawal.

It is critical to shop around for the best CD rates because different financial institutions provide a surprisingly wide range. For example, your local bank may offer pittances on even long-term CDs, whereas an internet bank or local credit union may offer three to five times the national average.