Who Invented CDs?

Certificate of deposit (CD) accounts are a type of time deposit you can use to save for short- or long-term goals. While you might think of CDs as being a feature of modern banking, they've existed in different forms for centuries. The concept of issuing certificates of deposit originated in the 1600s with the European banking system.

What Is a Certificate of Deposit?

A certificate of deposit (CD), also called a time or term deposit account, is a special type of savings vehicle. When you open a CD account, you deposit money with the agreement that you'll leave those funds in your account for a set time period. While the money is in your CD, it earns interest. Once the CD reaches the end of the specified time period or matures, you can withdraw your savings or roll it into a new CD.

Traditional banks, online banks, and credit unions can offer CD accounts to savers. There are different types of CDs you might be able to choose from, which include:

• Standard CDs
• Jumbo CDs
• Step-up CDs
• Bump-up CDs
• Raise-your-rate CDs
• Add-on CDs
• No-penalty CDs

The minimum deposit requirements for a CD can vary by the type of account and the bank. You might be able to open a standard CD with $500, for example, while a jumbo CD might require a $10,000 minimum deposit.

In terms of CD rates, those are typically determined by the term of the CD. CD terms may be as short as 28 or 30 days or extend anywhere from five to 10 years. As a general rule of thumb, the longer the CD term, the higher the rate.

CDs are protected by Federal Deposit Insurance Corporation (FDIC) coverage when held at FDIC member banks. The National Credit Union Administration (NCUA) provides coverage for CDs held at NCUA member credit unions. The current coverage limits for both are $250,000 per depositor, per account ownership type, per financial institution.

Who Invented Certificates of Deposit?

The history of CDs stretches back to the 1600s when banks in Europe began issuing certificates of deposit to customers. At that time, CDs were typically issued as engravings which would allow the holder to claim their deposits later, with interest earned. The idea behind CDs was the same then as it was now: to encourage savers to keep their money with a certain bank.

Certificates of deposit were introduced in the U.S. as the banking system began to take shape after the Revolutionary War. Banks began offering different types of accounts, including demand accounts, safe deposit boxes, and CDs in response to growing demand among consumers for secure places to keep their money.

Early CD products did not have any type of banking protection. That changed with the advent of the Federal Deposit Insurance Corporation (FDIC) in 1933. The FDIC was established under the Roosevelt administration as a means of promoting stability and public confidence in the nation's banking system. Today, the FDIC insures deposit accounts, including CDs, at member institutions in the event that a bank fails.

How To Open a Certificate of Deposit

If you'd like to use a CD to save, opening one is fairly simple and many banks and credit unions allow you to do so online. Before opening a CD, consider your savings goals first. Next, take time to compare CD options. Specifically, consider:

• CD interest rates
• Maturity terms
• Minimum deposit requirements
• CD fees

Choosing a longer term might help you to secure a higher interest rate, but you'll need to be fairly certain you won't need to withdraw that money before maturity. Also, consider how much money you'll need to open a CD and what you might pay in fees.

A CD account typically doesn't charge any monthly maintenance fees the way a savings account might. But you may pay an early withdrawal penalty if you take money from the CD before it reaches maturity.

The Bottom Line

CDs have a long history and we can thank the European banking system for inventing them hundreds of years ago to encourage people to save. A certificate of deposit may be right for your savings plan, though it's important to shop around to find the best CD rates. Also, consider how other savings options, such as money market accounts or high-yield savings accounts, will help you to reach your goals.