Question

Which statements apply to a Certificate of Deposit (CD)?

1. It can be purchased only from a credit union.
2. It can be purchased from a banking institution.
3. It can be purchased exclusively for large amounts.
4. It can be purchased for almost any amount.

Answer 1

Certificates of Deposit (CDs) are savings tools that can be purchased from both banking institutions and credit unions, not exclusively from either. They can be set up for various amounts, not just large sums, and they impose a hefty penalty for early withdrawal.

Step-by-step explanation:

To understand Certificates of Deposit (CDs), it's important to know that they are a type of savings tool offered by banking institutions and credit unions alike. CDs require you to deposit money for a fixed period of time and offer a higher interest rate in return compared to regular savings accounts. As for the statements given:

• Statement 2 is true: CDs can be purchased from banking institutions, including banks and credit unions.
• Statement 4 is partially true: Though CDs are often in large amounts, they can also be purchased for various amounts, sometimes even less than a thousand dollars depending on the financial institution's policies.

Statement 1 is incorrect because CDs are not exclusive to credit unions, and banks also offer them. Statement 3 is misleading as it's not a requirement for CDs to be exclusively for large amounts — they can cater to a range of investment capacities.

Remember, withdrawing funds from a CD before its maturity date can result in a substantial penalty. This is an important consideration when deciding whether a CD is the right investment for your financial goals.