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Certificates of Deposits

Demet Guler
Assistant Vice President, Manager - Webster BayTowne Community Office
[email protected]
(585) 670-8090 x41220

What are they?

Certificates of deposit (CDs) are receipts for funds deposited at a financial institution. The CD entitles you to a set rate of interest plus the amount of your original deposit (your principal) at a specified time called the maturity date.

Essentially, you agree to leave a specified sum of money on deposit for a set period of time. Funds may be withdrawn before maturity; in such cases, however, a premature withdrawal penalty will apply. A typical penalty might be the loss of interest for a quarter.

Relative Safety

CDs are considered one of the safest of investments because they are generally short term and have minimal exposure to inflation. There may, however, be some reinvestment risk, and as with any investments there are tradeoffs.


CDs are simple to understand, set up, and use. They operate much like passbook savings accounts created for a specified term.

FDIC Insured

Like certain other institutional accounts, CDs are insured up to $250,000 per depositor per bank by the Federal Deposit Insurance Corporation (FDIC). The insurance applies to each ownership format per bank. For example, if you had an individual account, a joint account with a spouse, and a retirement account at the same bank, and each account had a balance of $250,000, then all three accounts would be fully insured by the FDIC for a total of $750,000.

Higher interest rates than some investments

Because CDs are term deposits (they tie up your money for a specified period), they tend to pay a higher rate of interest than savings accounts and money market deposit accounts.

Some liquidity

Because they represent short-term investments, CDs are fairly liquid. If you need to draw money out before the term is complete, you may do so, but you may incur a penalty for early withdrawal.

Premature withdrawal penalty applies

If you withdraw your money before the maturity date, you will be obligated to pay an early withdrawal penalty, such as the loss of interest for a quarter. Therefore, if an emergency arises and you need your cash sooner than expected, you could stand to lose a portion of your expected interest (but not your principal).

May be reinvestment risk

Interest rates change over time. If they fall substantially while your money is tied up in a CD, you will be unable to reinvest your CD funds at the previous rates, since comparable CDs will offer lower yields. If you want to earn a higher rate, you'll have to invest in another type of vehicle and probably bear additional risk.

Tip: You can reduce your exposure to interest rate risk and reinvestment rate risk by investing in CDs with different maturity periods. By investing in CDs that mature at different times, you free up your money periodically to take advantage of changes in interest rates. This is known as laddering your CDs, and there are several laddering that can be used to implement the strategy.

Tax considerations*

Generally, interest earned on CDs is taxable on an annual basis and should be reported as interest income on Schedule B of your individual federal income tax return. Early withdrawal penalties charged on CDs are deductible on the federal level.

CNB offers many different CDs to meet your needs! As an optimum accountholder, you can take advantage of our special CD rates. Visit to learn more and view current rates.

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*Before making any investment decision, please consult your legal, tax or financial advisor.