Certificate of Deposit definition

Certificate of Deposit is an interest-bearing instrument offered by banks and financial institutions. Certificate of Deposit pays a fixed rate for pre-deturmined period of time.

For example, investing $1,000 into 1-year Certificate of Deposit paying 4% means you agree to keep this $1,000 invested for one year. At the end of the year you will get $1,000 back, plus 4% - $40 - for $1,040 total. If you withdraw the $1,000 early, there will usually be a substantial penalty.

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