Considerations

• Credit unions use the word dividends to describe regular payouts on CDs, because all members of the credit union are shareholders in the institution. While only a technical distinction, a credit union member essentially invests his deposited money in the credit union and receives a share of the profits that the financial institution earns. Dividends and interest on CDs feature similar payout structures and carry the same tax liabilities for a depositor, according to the Internal Revenue Code.
  
  

Time Frame

• Most depositors receive CDs from their financial institution with a term of less than a year, due to fluctuating interest rates. Long-term CDs offer a higher rate of return, because financial institutions can make more profitable long-term investments, but they may feature a call option that allows an institution to change the interest rate on the CD after a set period of months.
  
  

Types

• While banks commonly offer fixed rate CDs, depositors can choose variable rate certificates of deposit in order to receive a higher or lower rate on their investment that depends upon the cost to borrow money. Returns from variable rate CDs simulate the fluctuations and opportunity that corporate issued dividends provide but rarely result in the large gains or losses present in the stock market.
  
  

Size

• Both banks and credit unions offer increased rates of return for larger deposits, because financial institutions have lower overhead fees and can make larger loans, compared to managing many smaller deposits. Financial institutions typically issue interest or dividend payouts on certificates of deposits every month, which they will add to the balance of the depositor’s account.
  
  

Warning

• CDs feature rates of return lower than other classes of investments but carry Federal Deposit Insurance Corporation (FDIC) coverage that will compensate a depositor in the event of bank default. Since both the Securities and Exchange Commission and the FDIC recommend depositors to carefully investigate the legitimacy of high-yield CD payouts, depositors seeking a high rate of return with an increased risk of loss should invest in public companies with a track record of paying out dividends and a solid business model.