What are certificates of deposit (CDs)?

Certificates of deposit (CDs) are indeed time deposits provided by banks that offer a fixed interest rate over a predetermined maturity period. When an individual invests in a CD, they agree to leave their money in the bank for a specific duration in exchange for the promise of a higher interest rate compared to regular savings accounts. This arrangement benefits the bank by ensuring they have access to the funds for a set timeframe, allowing them to invest that money elsewhere.

The fixed nature of both the interest rate and the maturity date is central to the concept of a CD. Typically, the longer the term of the CD, the higher the interest rate offered. At maturity, the depositor can either withdraw their initial investment plus the accrued interest or roll it over into a new CD.

Other options presented relate to different financial instruments or accounts that do not share the same characteristics as CDs. For example, loans provided to borrowers with high credit ratings or accounts with variable interest rates refer to different financial services that do not involve the fixed terms and interest structure characteristic of a certificate of deposit. Similarly, checking accounts typically offer more liquidity and do not provide the fixed returns that a CD ensures. Thus, the defining features of CDs firmly align with the chosen answer.