Question

The 1st year and 3rd year periods for these accounts are the lengths of time that you must keep the money in the account. (You pay a penalty if you take the money out before the term is up.) Why might an investor choose a Certificate deposit with a shorter term rather than a longer one, even though it pays less interest?

Answer 1

Perhaps the investor is saving to buy something two years from now and does not want to pay an early withdrawal penalty.