What Is a Certificate of Deposit?

Video Transcript

"This is Financial Advisor Patrick Munro on "What is a Certificate of Deposit"? When you have money that is excess to you, in other words discretionary money, that you have saved apart from your daily budget, you can take that to a bank, and in return, when you give them the money they will give you a certificate of deposit. This means that you have a record of the money that you have left with the bank and the bank will use that money and lend it out to other individuals. While they're having the use of your money they pay you some interest rate for the fact that you gave them money. Interest rates vary between banks, and of course when you search around the Internet you can find the very best rates that are out there using bankrate.com, or working with your financial advisor who may also know the best local rates that are available. A certificate of deposit is a bedrock financial instrument for not only you but the bank as well, because they build up deposits in their bank, get higher ratings as a result, and are able to lend out even more money through their banking system. Keep in mind that certificates of deposit are FDIC insured, meaning the Federal Deposit Insurance Corporation will insure your money to a total of $100,000. This is Patrick Munro talking about the benefits of certificates of deposit."