Why do CDs have higher interest rates than savings accounts?
A)CDs are much riskier investments than savings accounts.
B)Interest on CDs is taxable while interest on savings accounts is not.
C)CDs provide better hedges against inflation than do savings accounts.
D)CDs are not as liquid as savings accounts.

Question

Quizplus · Accepted Answer

CDs typically have higher interest rates than savings accounts because they are less liquid. When you invest in a CD, you are agreeing to keep your money in the account for a set period of time, usually ranging from six months to five years. During this time, you cannot withdraw your funds without paying a penalty. This lack of liquidity is why CDs offer higher interest rates than savings accounts, which allow you to withdraw your money at any time.

Why Do CDs Have Higher Interest Rates Than Savings Accounts