Certificate of deposit (CD) in a community association is best described as:

• A. CDs are a form of liability insurance.
• B. CDs are an investment option for community associations seeking to generate additional revenue over time; reinvested together with accumulated interest, the yield will be higher than the stated rate.
• C. They require no minimum balance.
• D. They are used to insure against inflation.

Answer: (B)

Certificate of deposit is a conservative way to grow reserve funds. It’s a time deposit with a fixed term and a fixed interest rate, chosen by many community associations to generate predictable revenue while protecting principal. The key idea here is that the money earns interest over the term, and when that interest is reinvested, it compounds. Over time, compounding can push the total return above just the stated rate, creating more revenue than simply leaving the funds idle. CDs are not liability insurance, they usually require a minimum balance, and they don’t insure against inflation.