A certificate of deposit (CD) is a simple and popular savings vehicle offered by banks and credit unions. When a depositor purchases a CD, they agree to leave a certain amount of money on deposit at the bank for a certain period of time, such as one year. In exchange, the bank agrees to pay them a predetermined interest rate and guarantees the repayment of their principal at the end of the term. For instance, investing $1,000 in a 1-year, 5% certificate would mean receiving $50 in interest over the course of one year, plus the $1,000 you initially invested.