If you buy a CD, you deposit an agreed-upon amount at the bank for a fixed interest rate and term. When the CD term ends, the institution repays the full amount and any interest you've earned but not yet received. The bank may give you the option of depositing the same amount for another term, only at the current deposit rate. This means that your deposit is guaranteed up to that amount by the U.S. government. When you buy a CD, you deposit an amount equal to its face value and earn interest over the deposit term.
CDs are generally available for terms that range from as short as one month to several years.
Common deposit terms are six and 12 months. You can also buy a CD for an individual retirement account to gain tax advantages. You may want to deposit your money for a term that ends on the last day in March, for example, just in time for that honeymoon to the Caribbean. You should focus on the APY if you don't need the interest until after the CD matures, at the soonest. The APY compounds your interest to give you a higher rate.