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What Does Certificate Of Deposit Mean?

What is a certificate of deposit?  If you are looking for a long-term strategy for growing your money but want to avoid the risks of the stock market, a certificate of deposit (also called a CD) might be a good choice for you.

Keep reading to learn more about what a certificate of deposit means and how it can help you reach your financial goals.

What Does “Certificate of Deposit” Mean?

Certificate of deposit

A certificate of deposit, or CD, is a financial product sold by banks and brokerage firms. CDs offer a fixed interest rate for money that is held in an account for a certain number of months or years.

When the CD reaches maturity (i.e., the end of its term), the holder may withdraw the money or extend the CD for an additional term. It is also important to note that interest earned from a CD is typically subject to income tax. 

Certificate of Deposit vs. Other Deposit Products

Most certificates of deposit offer a higher interest rate than other savings and money market accounts. The CDs grow at faster rates because the interest is compounded, or periodically added to the original amount contributed.

CDs are considered a low-risk financial product and typically present a good option for individuals who want to grow their savings without the risk of the stock market.

Are There Downsides To a CD?

One of the reasons that banks offer a higher interest rate on certificates of deposit is because the holder gives up liquidity, or immediate access to their funds, for the term of the CD. Typically, the longer the term of a CD the higher the interest rate.

An individual who withdraws money from a CD before its maturity usually must pay a financial penalty, and he or she could forfeit several months of interest. Individuals should plan for contingencies by keeping some savings in more accessible accounts, such as a traditional deposit account, to best maximize their earnings on the certificate of deposit. 

How Can You Open a CD?

Synchrony Bank offers a wide range of financial products — including certificates of deposit, savings accounts and money market accounts — to help its customers grow their savings. Synchrony Bank offers its customers 24/7 online access, award-winning customer service and other perks, including free identify theft resolution+.

Call Synchrony Bank at 1-844-345-5789 or visit us online to learn what opening a certificate of deposit could mean for your financial goals.

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Sources:

Investor.gov: https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculator

Wall Street Journal: http://guides.wsj.com/personal-finance/banking/what-is-a-certificate-of-deposit-cd/

Investopedia: http://www.investopedia.com/terms/f/fdic.asp

US News & World Report: http://money.usnews.com/money/blogs/my-money/2014/10/21/why-you-should-move-your-savings-to-an-online-bank

+ Identity theft resolution services are provided by CyberScout™


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