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Certificate of deposit

Certificate of deposit , often called a CD,  is a document issued by financial institutions to investors that certifies that the investor has lent them money for a predetermined length of time. In exchange  the investor is paid an interest on that loan.

Maturities on Certificate of deposit can range from several weeks to years. The interest rate earned increases in proportion to the time the investor’s capital is tied up in the investment.  The investor can easily calculate their earnings at the very beginning of the term.

In case of longer maturities, the investors earn a higher interest rate, but their capital is locked for the  entire period, which, in turn,  may result in forgoing better or more profitable uses of the capital.

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