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What is a CD and how do they work?
Key takeaways
- CD investing offers a return without any loss, since CDs are a type of savings deposit account.
- These accounts are insured at banks that are members of the Federal Deposit Insurance Corp. (FDIC), so even if a bank goes under, you’re guaranteed your money, up to a certain amount.
Unlike other types of deposit accounts or investments, savers can count on fixed-rate CDs to deliver a specific yield for a specific time.
Even if interest rates fall precipitously in the broader economy, a fixed-rate CD, opened at a time when rates were high, will provide the same APY for the full term of the CD. That guaranteed rate of return makes it easy to do the math and calculate how much interest you could earn through the end of your term, which could be helpful when assessing your financial plan.
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