CD vs. Fixed Deposit: Understanding the Terms & Differences

There is no difference between a certificate of deposit and a fixed deposit. They are interchangeable terms for a time deposit, which is money deposited with a bank or other financial institution for a predetermined period.

Function

A certificate of deposit (CD) or fixed deposit account, allows you to invest a fixed amount of money for a set amount of time (three months to five years or more) at a fixed rate of interest. Typically, you earn interest at regular intervals, and when you redeem your CD on the maturity date, you receive the original amount plus any accrued interest.

Considerations

Fixed deposits or CDs generally offer a higher interest rate than a standard savings account or money market fund, as well as more security, since they are federally insured up to $250,000. If you redeem your CD before the maturity date, most banks charge an early withdrawal fee, typically three months' worth of accrued interest.

Types

Many fixed-deposit investors purchase their CDs through local banks or credit unions, but they can also be acquired through a brokerage firm, sometimes at a higher rate of interest. CDs come in the form of variable-rate CDs (fluctuating interest rate), long-term CDs (usually two to seven years), and high-yield CDs (may involve more risk).