CDs are always issued by banks or financial institutions, like credit unions and thrift institutions. Most often banks sell them directly to investors, but brokerage firms and deposit brokers may also sell CDs. Usually the brokerage firm negotiates a higher yield with the bank for a CD, then splits it up and sells it to several buyers.

A CD (sometimes referred to as a time deposit) is an account where funds are deposited for a specific length of time at an interest rate that is usually higher than that of a savings account. At the end of the time period the investor receives the money back, plus the interest. Some CDs mature in just 6 months, while others could take 5 years or more. Generally, the longer the maturity period, the higher the yield.

Risk-averse individuals tend to favor CDs. They typically offer a better return than savings and money market accounts, while keeping the deposited funds relatively safe. Unlike other investments, CDs are usually insured by the FDIC for up to $250,000. On the downside, once funds have been deposited in a CD, they are not accessible until the CD matures, with stiff penalties for early withdrawals.

Brokered CDs are becoming increasingly popular, with investors attracted by their high yields, however many people have suffered losses because they failed to do the proper research. Some are stunned to learn that what they thought was a 1-year CD actually matures in 20 years. Some have been assured that the CDs could be traded on a secondary market, only to find the price significantly lower than what they paid, while others have learned that the issuing bank was not FDIC insured. Consult the Securities and Exchange Commission Web site, www.sec.gov/investor/pubs/certific.htm, for advice about thoroughly investigating a CD prior to purchase, particularly high-yield CDs sold by brokers.