A certificate of deposit is a savings account in which a predetermined amount of money is deposited in a fixed account for a specific amount of time, offering an interest rate higher than other savings account. Certificates od deposit or cds, are issued to increase the range of money market instruments giving investors greater flexibility in terms of short-term funds utilization. Cds are issued by commercial banks and act as an agreement between the depositor and the bank. The deposit by the customer must be a lump sum amount and should be left untouched for the specified period.
The depositor must deposit a lump sum amount of money while opening a cd account. The issuer of the cd, in return, offers interest payments at regular intervals till the date of maturity. At maturity, the account holder receives the entire amounted that was initially invested, in addition to all the interest.