What is a time deposit held in a bank that pays interest called?

A time deposit held in a bank that pays interest is known as a certificate of deposit (CD). This financial product involves depositing a specific amount of money for a predetermined period of time, during which the funds cannot be withdrawn without incurring a penalty. In exchange for keeping the money locked away for this time frame, banks typically offer a higher interest rate compared to regular savings accounts.

Certificates of deposit are recognized for their stability and the guarantee of interest payments, making them a popular choice among individuals looking to earn interest on their savings without substantial risk. The characteristics of a CD offer not only a defined interest rate but also a clear maturation date when the depositor can access the principal and accrued interest.

On the other hand, savings accounts, money market accounts, and checking accounts serve different purposes. Savings accounts generally allow for easier access to funds and may earn interest, but not typically at the same rate as CDs. Money market accounts can offer higher interest rates and some features of checking accounts but usually require higher minimum balances. Checking accounts, primarily designed for transactions, generally do not pay interest or offer very low interest rates. The distinction in the purpose and conditions of these accounts highlights why a certificate of deposit is specifically identified as a time deposit that pays interest