Function

• Unlike other demand accounts, which allow you to withdraw money at any time, CDs specify a term for which the money must remain in the account. Bankrate.com states that most CDs require you to commit to terms between three months and five years.
  
  

Benefits

• CDs receive protection from the Federal Deposit Insurance Corp. (FDIC), which insures your CDs at each bank for up to $250,000. In addition, the rates of return for CDs usually exceeds the rate of return on more liquid deposit accounts.
  
  

Warning

• Early withdrawals result in significant penalties. According to Bankrate.com, penalties average three months of interest on CDs with terms less than a year, while longer CD terms penalize about six months of interest.