A certificate of deposit is a financial instrument offered by many of the banks today. Though a CD has some similarities to a savings account, there are some marked differences to note, as well. Typically, a person will invest money in a certificate of deposit over a fixed term, meaning that they will allow the money to stay in that account for a period of 3 months, 6 months, 1 year, or even five years. In exchange for leaving this money with the bank until its maturity date, the banks offer competitive CD rates that can give people a significant amount of return on their investment.

CD rates are essentially the bank rates that you can get for taking out a certificate of deposit with a certain bank. Some banks will offer higher CD rates because they have to in order to attract most customers. Typically, the banks that offer these higher rates are ones that are smaller. Even bigger bank rates can come from those banks or credit unions that are not FDIC insured. They offer higher rates because the money put in their CDs is not guaranteed, whereas it would be guaranteed with the insured banks.

CD rates are typically higher than what you might find with a high yield savings account and there is a good reason for this. Individuals do not have the ability to take money out of a CD any time that they choose, so the bank gets the security of knowing that the money is going to be there. The person buying into the certificate of deposit sacrifices access to the money for a certain amount of time for a guaranteed return on investment. This is something that is mutually beneficial for both the customer and for the bank, which is how they can justify the bank rates currently available.

A thing to know about CD rates is that they are typically guaranteed. While many investments come with no promises, this is one that comes with the backing of the FDIC. If you are investing in a CD from a credit union, then your money will be protected by the NCUA. CD rates go up and come down with the economy, so they will be higher in good times and they will also be higher for larger investments.