What Are CD Rates?


Quick Answer

The phrase "CD rate" refers to the interest percent yield on a certificate of deposit investment. A 2 percent CD rate, for instance, means the investor earns 6 percent interest on the CD amount. CDs are a safe investment and pay higher rates than savings accounts, according to About.com.

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Full Answer

The primary reason banks pay higher interest on a CD relative to a savings account is because a CD requires that the investor keep the money in the bank until the CD matures, according to About.com. While early withdrawals are possible, a penalty normally applies. The benefit of a higher rate or interest yield may be entirely wiped out with a significant early withdrawal penalty.

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