A CD, or certificate of deposit, is a type of savings account offered by banks and credit unions. It is a low-risk savings tool that can boost the amount you earn in interest while keeping your money invested in a relatively safe way. When you open a CD, you agree to keep your money in the account for a specified length of time, known as the term, without taking a withdrawal. Withdrawing money early means paying a penalty fee to the bank. CDs differ from savings accounts in that they have a specific, fixed term before money can be withdrawn without penalty.

CDs are considered low risk because they are FDIC-insured up to $250,000. CDs generally allow your savings to grow at a faster rate than they would in a savings account. When you shop for a CD, compare different offers by looking at the term, the interest rate you earn, and the amount of the penalty for withdrawing money before the end of the term.

Opening a CD is very similar to opening any standard bank deposit account. The difference is what you’re agreeing to when you sign on the dotted line. After you’ve shopped around and identified which CD(s) you’ll open, completing the process will lock you into four things: the term, the interest rate, the compounding frequency, and the early withdrawal penalty.

CDs are a special type of savings instrument that provide a way to put money away for a specific savings goal or to park funds that you simply don’t need for day-to-day expenses, all while earning a certain return on your balance. CDs don’t have monthly fees, but most have an early withdrawal penalty.

There are different types of CDs, such as Step-Up Callable CDs, which are a form of CD where the interest rate increases multiple times prior to maturity of the CD. CD laddering is a type of saving strategy that involves opening both short- and long-term CDs, providing more flexibility than putting cash in one CD.