You can learn much more about how Certificates of Deposit (CDs) work by reading any number of various websites. A sample list of these sources appears at the end of this answer (and please ignore any advertising on these webpages, as the ad content is neither sponsored by nor endorsed by TurboTax). The information content (text) provided there, however, has been reviewed and is accurate.
To answer your main question, though, when a CD with a duration of less than one year matures, you will owe taxes on all of the interest (reported to you on Form 1099-INT) from that CD in one tax year. So, for instance, if you had a 6-month CD purchased in October 2016, and it matured in April 2017, that CD interest earned is taxable for the 2017 tax year. Thus, you'll have to report it on your 2017 tax return, which is filed in 2018. You'll get your original principle back (i.e., the amount you invested in the CD) upon maturity, plus whatever interest has been earned. You are taxed only on the interest earned, not your return of capital / principle.
When a multi-year CD exists, you have to instead pay taxes on the interest on each year of its existence. So, using the same facts as above, except that of maturing date, a 5-year CD purchased in October 2016 and maturing in October 2021, would see the owner reporting taxable interest in 2016, 2017, 2018, 2019, 2020, and 2021.
When a CD is withdrawn prematurely, there is usually a small penalty imposed by the bank.
Here are some additional links and articles that may aid in understanding:
http://www.investopedia.com/ask/answers/060616/are-certificates-deposit-cds-taxable.asp
http://finance.zacks.com/certificates-deposit-taxed-3953.html
https://www.thebalance.com/do-i-pay-tax-on-cd-interest-315242
Thank you for asking this important question.
