A CD holds your money for a specified length of time (such as six months or two years), and your bank or credit union pays you interest based on the amount of your deposit and the length of the term.  When you use a CD, you typically commit to leaving your money in the account. In return for that commitment, banks usually pay higher interest rates than they do in more liquid savings accounts. But if you need your money before the term ends, you may have to pay an early withdrawal penalty.