how does a certificate of deposit cd work 
a certificate of deposit cd is a simple and popular savings vehicle offered by banks and credit unions when a depositor purchases a cd they agree to leave a certain amount of money on deposit at the bank for a certain period of time such as one year in exchange the bank agrees to pay them a predetermined interest rate and guarantees the repayment of their principal at the end of the term for instance investing 1 000 in a 1 year 5 certificate would mean receiving 50 in interest over the course of one year plus the 1 000 you initially invested can you lose money on a cd practically speaking it is almost impossible to lose money on a cd for two reasons first they are guaranteed by the bank or credit union that offers them meaning that they are legally required to pay you exactly the amount of interest and principal agreed upon second they are generally also insured by the federal government for up to 250 000 that means that even if the bank or credit union went bankrupt your principal would very likely still be repaid 69 for these reasons cds are considered one of the safest investments available 