than for a regular savings account. While you can withdraw the money before the allotted time, as the

advertisements for CDs always warn, there is “a substantial penalty for early withdrawal.”

Figure 17.4 shows the annual rate of interest paid on a six-month, one-year, and five-year CD since 1984, as
reported by Bankrate.com. The interest rates that savings accounts pay are typically a little lower than the CD

rate, because financial investors need to receive a slightly higher rate of interest as compensation for

promising to leave deposits untouched for a period of time in a CD, and thus forfeiting some liquidity.

Access for free at openstax.org
17.2 • How Households Supply Financial Capital 415

FIGURE 17.4 Interest Rates on Six-Month, One-Year, and Five-Year Certificates of Deposit The interest rates on

certificates of deposit have fluctuated over time. The high interest rates of the early 1980s are indicative of the
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