A Certificate of Deposit (CD) is a type of account that typically has the highest interest rate because it has the least flexibility in terms of usage. Hence, a customer can withdraw the money not until the deposit reaches its maturity; otherwise, a customer will pay the penalty.
Explanation:
A certificate deposit is an agreement between a customer and a bank to deposit a sum amount of money for a set period. In addition, the bank gives a customer some interest as an exchange, which is a good opportunity for passive income. The interest rate is typically high because one is not allowed to withdraw the money that is stored until the period of the agreement is over.
Considering other options, a checking account is a transactional account within a bank that allows a customer to withdraw the money anytime he wants. It is commonly used for paying the monthly bill and connected to the debit card. Furthermore, every bank usually enables its customers to divide the deposit into transactional and savings accounts.
Saving account is an independent account that separates the deposit with the transactional account. Its interest rate is higher than the transactional account, but the money can be transferred from a savings account to the transactional one whenever a customer needs it. Ultimately, the money market is another type of account that connects the savings account and transactional account.
As such, the owner of this account allows the bank or investment bank to use their money and be invested in the low-risk financial tool such as the National treasure bill or others. Compared with the CDs, however, a money market account does not limit the money for any predetermined length of time.
With that said, the Certificate of Deposit is a low liquidity account that is restrained with a penalty for a premature money withdrawing, which is the most secure way to save the money. Different banks and credit unions provide different interest rates for any given CD.
When examining the savings accounts, it is essential to consider the sum of money that can be deposited right away, the frequency that one needs to access the money, and the ability to write checks against one’s balance. However, the most crucial concern is the relevance of the interest rate for a bank customer.
