What Is a Certificate of Deposit (CD) and How Do They Work?

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Having a cash management strategy is a critical component of your overall financial portfolio. Certificates of deposit (CDs) can play an important role, offering you competitive yields, FDIC insurance protection and convenient benefits.
CDs purchased through Merrill are subject to FDIC coverage limits. Please check with the financial institution and review the FDIC coverage explanation on certificates of deposit for complete details.

Understanding CD fundamentals

A CD is a time deposit, issued by a bank or savings association. You deposit funds with the financial institution for a specified length of time, and in exchange you earn a specified rate of interest on your deposit. That interest is generally paid to you in regular intervals during the term of the CD. CD terms can vary from days to months or years.

Benefits of CDs

CDs offer a range of benefits. They:
  • Allow you to diversify your overall financial strategy with an FDIC-insured vehicleFootnote 1
  • Can help you preserve wealth and deliver steady income
  • Are considered a low-risk investment due to FDIC insurance coverage
  • Support short- and long-term principal protection strategies

Merrill CD choices

As a Merrill client, you can purchase CDs through Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill) from various banks, including Bank of America, N.A. CD purchased through Merrill are known as "brokered CDs." A Merrill brokerage account is required for a brokered CD. Brokered CDs can be traded on the secondary market. The secondary market may be limited. The pre-maturity sale price of CDs may be less than its original purchase price, particularly if interest rates are higher at the time of sale. There may be certain features or provisions of the CD that may also influence its market price.

Brokered CD choices

Learn more information on Merrill brokered CDs.

Bank CD choices

Bank of America offers a variety of CD choices that may fit your needs. Learn more information on Bank of America, N.A., CD choices.
Points to consider
  • Please note that Certificate of deposits (CDs) can have limited liquidity and early withdrawal penalties may apply.

Footnote 1 Diversification does not ensure a profit or protect against loss in declining markets.