BPA Personal Financial Management Practice Test 2025 – Your All-in-One Guide to Mastering Financial Management!

A certificate of deposit (CD) typically earns higher interest rates compared to regular savings accounts because it requires the account holder to commit their funds for a specified period. In exchange for this commitment, banks and financial institutions usually offer a higher yield than what is available for standard savings accounts.

The reason for this higher interest rate lies in the nature of CDs: since the money must remain untouched until the end of the term (which can range from a few months to several years), financial institutions benefit from the stability of having access to that capital over a longer period. This allows them to engage in more profitable lending or investment activities.

In contrast, checking accounts, money market accounts, and standard savings accounts generally have more flexibility but offer lower interest rates, as they are designed for more liquidity and easy access to funds. Checking accounts, in particular, are primarily transactional, and while money market accounts may offer slightly higher returns than standard savings accounts, they do not typically match the rates found in CDs.