Certificate of deposit

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A certificate of deposit (CD) is a monetary option offered by banks where a client can put an amount of money into a certicate that is then tied up for the length of the contract at a set rate of return. The longer the contract term, the greater the interest rate offered in most cases. Any attempt to take money out of the certificate of deposit before its expiration date would result in a monetary penalty.

Many certificates of deposit also offer graduated rates based upon the amount of money to be deposited or may have a minimum requirement to open a certificate of deposit. For those with graduated rates, the rates of return are usually greater for higher deposit amounts.

Ex. A CD may pay 5.00% interest for 9 months for deposit values < $10,000, 5.25% for amounts > $10,000 but < $50,000, or 5.50% for amounts over $50.000 with a minimum starting outlay of $2,000 to open the account.

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