Definition
A savings deposit that pays a fixed rate if you leave the money in the bank for a set term, such as 6 months or 5 years.
What it means
A certificate of deposit, or CD, is a time deposit. You agree to leave a fixed amount with a bank or credit union for a set period, called the term, and in return the bank usually pays a fixed interest rate that is often higher than a regular savings account. If you take the money out before the term ends, the bank normally charges an early withdrawal penalty, often a few months of interest; each bank sets its own penalty. When the CD matures, many banks renew it automatically unless you act during a short grace period. CDs at insured banks are covered by FDIC insurance within the usual limits. Brokered CDs bought through a brokerage account work differently and can lose value if sold before maturity, as Investor.gov explains.
Example
A $10,000 one-year CD at 4.00% APY pays about $400 at maturity. Breaking it after 6 months with a 3-month interest penalty would cost about $100 of the interest earned.
Illustrative numbers only. Your situation will differ.