Most banks pay a higher rate on certificates of deposits because the CD’s have a set length of maturity. This means the bank can use those funds for predetermined period of time without worrying about losing the funds via sudden customer withdrawal. Remember, banks make money by loaning out the deposits or investing the money at a higher rate of return. This is one of the reasons why CDs have early withdrawal penalties, if you extract the money suddenly the bank wants to be compensated for paying the higher interest rate.

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