What is an important characteristic of a 'Certificate of Deposit'?

A Certificate of Deposit (CD) is a financial product offered by banks and credit unions that involves depositing a fixed amount of money for a set period of time, during which the deposit earns interest. One important characteristic of a CD is that it typically requires a minimum balance to earn interest. This means that the investor must deposit a specified amount of money, which can vary between institutions, in order to benefit from the interest rates offered on the certificate.

Investors often choose CDs because they usually provide higher interest rates compared to regular savings accounts, rewarding those who are willing to lock in their money for a certain duration. If the deposit falls below the minimum balance during the term, the account holder may not receive the interest, or they might incur fees, illustrating the importance of maintaining the required minimum balance to benefit from the investment.