Final answer:
A Certificate of Deposit (CD) is a type of deposit that offers higher interest rates but restricts early withdrawals. The money is deposited for a specific time and withdrawing it before that time will result in a penalty.
Step-by-step explanation:
A Certificate of Deposit (CD) deposit pays higher interest but restricts when funds may be withdrawn. The CD is a time deposit account, where you agree to deposit a specific amount of money (usually measured in thousands of dollars) in the bank for a set period, ranging from a few months to several years. The bank, in return, promises to pay a higher interest rate compared to a regular savings account. Despite the possibility of withdrawing the money before the agreed time, doing so usually incurs a substantial penalty. This format of deposit is suitable for individuals who have a lump sum of money, which they do not expect to use in the near future and wish to earn a higher rate of interest on it.
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