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Understanding Certificate of Deposit accounts

By BanescoUSA
Published on March 12, 2020

A Certificate of Deposit often referred to as a “CD”, is a type of federally insured savings account typically issued by commercial banks and using a fixed interest rate. The account restricts your access to the money invested with a fixed date of withdrawal. These accounts offer much higher interest rates than traditional savings accounts and don’t have monthly fees. The money deposited gains value over an agreed-upon duration, but it could be subject to fees if withdrawn before the end of the agreement. At Banesco USA we offer competitive CD rates and a wide variety of terms.

When a client opens a CD account with a bank, he is investing a specific amount of money for a set period. The institution pays interest at regular intervals until the agreed withdrawal date, also referred to as the date of maturity. At that time, the customer receives the full original investment amount plus all of the accumulated interest. A CD with a shorter maturation time will pay less interest while a CD with a longer maturing time will typically have a higher yield.

Compared to regular savings accounts, CDs offer a higher profit to compensate for the loss of liquidity. They also represent a low-risk investment opportunity because the customer needs little understanding of investment markets and because they’re insured by the FDIC up to $250,000. Some banks allow for a variable rate of interest and others may index the CD to the stock market or other indices. Interest rates are almost always tracked to inflation.

While banks evaluate penalties on different CD customers who withdraw their investment before the date of maturity, some banks allow the account owner to withdraw from the interest accrued during the CD’s term, although this, of course, reduces the profit.

How does a CD work?

Opening a CD account is similar to opening any regular bank account. The difference is the agreement terms.

  1. Interest rate: having a locked interest rate means that you can have a predictable return on your deposit over the specific time period stipulated. The negative aspect of it is that if your rates rise substantially, then you can miss the opportunity of higher-paying CD’s.
  2. The termThis is the length of time you agree to leave your funds deposited to avoid any penalties. The term ends on the “maturity date,” when your CD has fully matured and you can withdraw your funds.
  3. The principal: This is the amount you agree to deposit when you open the CD.
  4. The institution: The bank where you open your CD will determine the terms of the agreement, such as early withdrawal penalties (EWPs) and whether your CD will be automatically reinvested if you don’t provide other instructions at the time of maturity.

Once you opened your CD account, the bank will administer it like most deposit accounts by sending monthly or quarterly statement balances.

At Banesco USA we offer competitive rates and a wide variety of terms.

There are different types of CD accounts including:


  • Traditional CD’s have maturity dates ranging from a few months to several years, interest rates are typically fixed, and early withdrawals are always subject to penalties.


  • Jumbo CD’s requires an initial deposit of $100,000. Depending on the bank, some offer higher rates with larger deposits.


  • An IRA CD or an individual retirement account offers some of the benefits of a traditional account.

Open a Banesco USA Certificate of Deposit Online account now. It’s fast, easy and secure! Open NOW



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