What is the primary purpose of a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is primarily designed to provide a secure place for individuals to deposit their savings while earning interest at a fixed rate over a specified term. This means that the investor agrees to leave the funds in the account for a set period, which can range from a few months to several years. In return for this commitment, the bank offers a higher interest rate compared to regular savings accounts, making it an attractive option for those who can afford to set aside their money for a while.

The key features of a CD are its safety and predictability. The funds are typically insured by the FDIC (for banks) or the NCUA (for credit unions) up to certain limits, which assures depositors that their money is protected against bank failures. Additionally, the fixed interest rate means that regardless of fluctuations in market rates, the depositor knows exactly how much interest will be earned by the end of the term.

In contrast, other choices suggest aspects that do not align with the primary function of a CD. For instance, while it's true that CDs can provide higher returns than standard savings accounts, they do not inherently offer high returns while being risky, as they are generally considered very low-risk investments. Similarly, while banks do offer