What type of risk is associated with certificates of deposit?

The most accurate option regarding the risk associated with certificates of deposit (CDs) is that they carry variable default risk depending on the issuing bank. While CDs are typically considered safe investments, they are not entirely devoid of risk. The default risk varies based on the financial health of the bank that issues the CD. If a bank encounters financial difficulties or fails, it could default on the CD, leading to potential losses for the investor.

Government backing, such as that provided by the Federal Deposit Insurance Corporation (FDIC) in the United States, does provide a degree of safety for CDs, but it is limited to specific amounts and situations. Thus, it's essential to recognize that the level of risk can differ from one institution to another based on their financial stability.

In contrast, options suggesting no default risk or high default risk irrespective of the issuing bank do not accurately reflect the nature of CDs. Each bank's financial condition plays a crucial role in assessing the associated risk. Market risk due to interest rate fluctuations does exist for CDs, particularly for longer-term ones, but this is not the primary form of risk associated with them, as the principal default risk remains tied to the issuer's stability.