DECA Marketing Cluster Practice Exam

What is a Certificate of Deposit (CD)?

1. A loan offered by a bank to customers

2. A certificate issued by a bank for depositing money for a fixed period

3. An investment in stocks and bonds

4. A type of savings account without interest

The correct answer is: A certificate issued by a bank for depositing money for a fixed period

A Certificate of Deposit (CD) is a financial product offered by banks that allows customers to deposit a sum of money for a fixed duration, typically earning a higher interest rate than a regular savings account in return for committing to leave the money untouched for that period. The key characteristics of a CD include the fixed interest rate, the predetermined time frame (which can range from a few months to several years), and the safety associated with these deposits, as they are often insured by governmental agencies up to a certain limit. When customers invest in a CD, they agree not to withdraw the funds until the term ends, which differentiates it from other financial instruments or bank products. This locked-in approach allows the bank to use the deposited funds for lending while offering the customer a guaranteed return on their investment through interest. This makes option B the most accurate and comprehensive definition of a Certificate of Deposit.