Certificate of Deposit (CD): Definition & Meaning | Bondfish
What it means
When you open a CD, you deposit a lump sum for a fixed term and the bank pays a fixed interest rate for the life of that term — higher, in most rate environments, than a regular savings account. Withdrawing before maturity usually triggers an early-withdrawal penalty, often equal to several months of interest.
CDs are sold directly by banks and credit unions, or as brokered CDs through a brokerage account, which can be traded on a secondary market before maturity (at a price that may be above or below what you paid, depending on how rates have moved). As of September 2026, brokered 1-year CDs were yielding around 4.25% APY, with rates rising modestly for longer terms.
Certificates of deposit (CDs) should not be confused with credit default swaps (CDS) — a completely different derivative instrument used to hedge or speculate on credit risk. In fixed-income discussions, “CDs” almost always means the bank deposit product described here.
Why it matters for bond investors
CDs compete directly with short-term Treasury bills and money-market instruments for the “safe cash” portion of a portfolio. In the United States, CDs from FDIC-member banks are insured up to $250,000 per depositor, per bank, per ownership category — a protection bonds and bond funds do not carry. Investors building a bond ladder often mix CDs alongside Treasury bills to compare after-tax yield and liquidity before committing cash for a given term. For a fuller comparison of the two, see Bonds vs CDs: Understanding the Main Differences.
Example
$10,000 in a 1-year CD at 4.25% APY → $10,000 × 4.25% = $425 in interest at maturity (before tax), assuming no early withdrawal.
Related terms
This definition is for general information only and is not investment advice. Bond investing involves risk, including possible loss of principal.