Advantages of Certificate of Deposit
1. Safety and Security: CDs are considered low-risk investments because they are typically offered by banks and credit unions that are federally insured up to certain limits (e.g., FDIC insurance in the United States). This insurance protects the deposited funds, providing a level of safety and security for investors.
2. Guaranteed Returns: Unlike other investments that may fluctuate in value, CDs offer guaranteed returns. The interest rate is fixed at the time of purchase and remains constant throughout the term of the CD, ensuring a predictable return on investment.
3. Higher Interest Rates: CDs often provide higher interest rates compared to traditional savings accounts. The longer the term of the CD, the higher the interest rate typically offered, allowing investors to earn more on their savings over time.
4. Diversification: Including CDs in an investment portfolio can help diversify risk. While CDs may not offer the same potential for high returns as riskier investments like stocks, they provide stability and serve as a reliable source of income.