A certificate of deposit, also referred to as a CD, is a time deposit at a bank, credit union, or other financial institution. However, the certificate of deposit cannot be withdrawn until an agreed upon date known as its maturity date. If a withdrawal becomes a necessity, the financial institution will assess a penalty—usually the loss of interest.
A depositor will earn more interest on a certificate of deposit than the amount earned on a savings account or money market account. The length of a certificate of deposit could be one month, three months, six months, one year, 17 months, three years, etc. Generally the longer the time until maturity, the higher the interest rate.
A CD that matures in less than one year will be reported by the bank as a current liability, and will be reported as a short-term investment by the depositor (provided the amount is not restricted by the depositor).
After working as an accountant, consultant, and university accounting instructor for more
than 25 years, Harold Averkamp formed AccountingCoach.com in 2003. His goal was to
share his knowledge and passion for teaching accounting with people throughout the
world at a very low cost. Read More...