In terms of banking what is a cd? and how does it work?

Answer 1

Just to expand a little on the last answer. You can actually get at the money if you need to, but you will pay a penalty. Typically the penalty is 60 or 90 days of interest that you have earned already.

Some financial institutions have a new format for CDs where you can begin with a minimum deposit amount ($2000 to $5000) and you can add to the CD as much as you want to. This will allow you to continually put money into a higher rated account without having to open multiple accounts.

If you think you may need the money, but want a higher rate anyway, look for a money market checking account. This is a glorified savings account that you can write 3 checks a month from. They have minimum balance requirements, but pay much better than checking or standard savings accounts.

Answer 2

CD stands for "Certificate of Deposit." You agree to let the bank keep your money for a certain period of time, and they agree to pay you a certain interest rate. So long as you don't need the money, it's got low risk and a higher rate of return. It pays better than just a regular account, but you need to agree not to touch the money.