Certificates of Deposit (CDs) are similar to savings accounts because of which of the following?

• A. Both are insured by the FDIC up to certain limits.
• B. Both allow unlimited withdrawals without penalty.
• C. Both offer variable interest rates that change daily.
• D. Both are considered equity investments.

Answer: (A)

Verified step by step guidance

1. Understand the nature of Certificates of Deposit (CDs) and savings accounts. CDs are time deposits where money is locked in for a fixed term, while savings accounts are more flexible and allow regular deposits and withdrawals.
2. Review the characteristics of FDIC insurance. The Federal Deposit Insurance Corporation (FDIC) insures deposits in banks, including both CDs and savings accounts, up to a certain limit (e.g., \$250,000 per depositor, per insured bank).
3. Analyze the withdrawal policies. CDs typically impose penalties for early withdrawals, whereas savings accounts allow more frequent withdrawals without penalties, subject to certain limits.
4. Examine the interest rate structure. CDs usually offer fixed interest rates for the term of the deposit, while savings accounts may offer variable interest rates that can change over time.
5. Clarify the classification of investments. CDs and savings accounts are considered debt instruments (not equity investments), as they involve lending money to the bank rather than owning a share of the bank.