A Certificate of Deposit (CD) is a type of savings account that holds a fixed amount of money for a fixed period of time, and in return, the bank or credit union pays you interest. Unlike regular savings accounts, you generally can't withdraw the money before the CD's term is up without paying a penalty. The longer the term, typically the higher the interest rate you'll receive. CDs are a relatively safe way to save money, especially if the issuing institution is FDIC-insured.
Match the following terms with their definitions:
| Term | Definition |
|---|---|
| 1. Maturity Date | A. The percentage rate paid on the CD. |
| 2. Interest Rate | B. The date when you can withdraw your money without penalty. |
| 3. Term | C. A government agency that insures deposits at banks and thrift institutions. |
| 4. FDIC | D. The length of time your money is locked into the CD. |
| 5. Principal | E. The original sum of money deposited. |
Certificates of Deposit are considered a relatively ______ investment because they are insured by the ______. CDs typically offer ______ interest rates than regular savings accounts because your money is locked up for a specific ______. If you withdraw your money early, you may have to pay a ______.
Why might someone choose to invest in a Certificate of Deposit (CD) instead of investing in the stock market, even if the potential returns from the stock market are higher?
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