The last word on certificates of deposit presumably should come from one's professional money manager, broker, banker, or financial consultant. Here I am simply seeking to provide a quick summary and will not delve at all into such interesting alternatives as equity-tied CDs, bump-up CDs, callable CDs, tax-free CDs, zero-coupon CDs, inflation-adjusted CDs, or other non-traditional types of certificates of deposit, most of which might not be appropriate for the majority of investors in any case.
Definition: A certificate of deposit (CD) is a promise from a bank or brokerage, to which funds have been deposited, to repay them to a particular individual, partnership, or business. It specifies the name of the depositor, the amount, a defined duration (usually months or years), and an established rate of interest. Normally, but not always, the rate is partly dependent on the funds being left on deposit for the specified period, so often there is a penalty for early withdrawal.