Which of the following best describes a Certificate of Deposit (CD)?

A Certificate of Deposit (CD) is best described as a savings certificate that allows the bearer to receive interest based on specific terms set by the financial institution. When an individual invests in a CD, they agree to deposit a certain amount of money for a fixed period, such as six months, one year, or five years. In exchange for locking in their money for this period, the bank offers a higher interest rate compared to regular savings accounts. This instrument is generally considered low-risk, making it an attractive option for those looking to preserve capital while earning interest, albeit with limited liquidity due to early withdrawal penalties.

In contrast, the other choices do not accurately represent a CD. A debt instrument issued by governments typically refers to bonds rather than CDs, which are not tradeable. An investment in the stock market is characterized by variable returns and involves buying shares of companies, while CDs offer fixed returns. Lastly, a standard savings account allows for easy access to funds without penalties, unlike CDs, which impose penalties for early withdrawal.