A certificate of deposit is known by its initials-CD. But like any financial tool, these initials can spell trouble if you don't understand how the product works. Here are six smart tips to help you learn the ABCs of CDs.

The stock market delivers more ups and downs then a 10-year old on a pogo stick. That's why investors looking for a smoother, more reliable instrument opt for certificates of deposits. Here are some smart tips for prospective purchasers of CDs.

1. Know your maturity date

With a CD, you make a lump-sum deposit, which accumulates interest at a set rate over a specific period of time. When it reaches its maturity date, your principal is returned to you, plus interest. Make sure that you know the date the CD matures. If you inadvertently access the money before that date, you could wind up either paying an early withdrawal fee, or forfeiting part of your interest.

2. Check with your broker

CDs are sold by a variety of financial institutions, including brokers. When brokers package together a large volume of CDs, they receive favorable rates from lenders, which they pass on to the consumer.

3. Are you federally protected?

CDs feature federal deposit insurance up to a total of $100,000 per lender. If you purchase a CD from a broker, find out who the issuer is. If the broker is selling you a CD from a financial institution where you already have $100,000 in CDs, your new investment will not have any federal deposit insurance.

4. Taking the call

Some CDs include what's referred to as a "call date." This entitles a lender to "call" in your CD whenever they want, such as when interest rates are falling. If this happens, you'd receive your original principal, plus any accrued interest. You'd also then need to find another investment-one that may have a lower rate of return.

5. The early bird gets penalized

Your CD will have penalties for early withdrawal. Generally, if you decide to cash in a CD before the maturity date, you'll also have to forfeit some interest.

6. Know the variables

There are a variety of different CDs offered today, and some include variable interest rates. Many are tied to a market index, while others include a pre-set adjustment schedule. Be sure that you're crystal clear as to when the adjustments occur.

CDs can spare an investor the roller-coaster ride of the stock market. But the investment trail can still have plenty of bumps if you're not familiar with the facts of CD life. Study them before you make an investment. With CDs, the levelheaded investor can minimize the ups and downs of an ever-changing stock market.