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What Does the Word CD Mean When Talking About Bank Accounts?

Updated February 08, 2018

If you've been looking into opening a bank account, you may have come across information about CDs. CD stands for certificate of deposit, a type of investment offered through banks and other financial institutions.

Function

A certificate of deposit is a form of investment that functions like a savings account. You invest money into the CD account and it earns interest. The CD will mature after a period of time; depending on your bank and its options, this could be a period of months or years. You can then withdraw the money once the CD matures.

Benefits

The primary benefit of opening a CD account is the potential return. These accounts typically offer higher interest rates than savings accounts. It may be possible to secure even higher rates if you invest in a CD through a broker.

Considerations

Before going forward with starting a CD account, be sure that you understand all of the financial terms associated with the account. Check to see whether the interest rate is fixed or variable, and find out the exact maturity date. Be aware that there are penalties associated with withdrawing CD money before it matures, and some banks may not allow you to withdraw early at all. Some CDs have call dates; this means that the issuing institution can close the account after a certain time period, according to the Securities and Exchange Commission.

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About the Author

Previously working for the North Carolina Community College System, Rachel Morgan has been a freelance writer and editor for over six years. She has a bachelor's degree in public health as well as a master's degree in English.