The Advantages and Disadvantages of CDs
CDs or Certified Deposit accounts are those in which the owners of the accounts deposit money into an account where the money is locked in for a specific period of time. The
There are many advantages that can be seen when choosing these types of accounts. The advantages of choosing a certified deposit account include:
- These are a low-risk type of investment and can fit the investment profile of those individuals that wish to take advantage of
- The deposits are insured by the FDIC to ensure that your money is protected in case anything was to occur within the bank that you have opened the CD with.
- CDs provide you with a higher interest rate than making use of a savings account alone.
What are some of the disadvantages of choosing certified deposits as your choice of investment?
- There are other types of investments that are available that come with a higher interest rate for those seeking to maximize the potential of their investment.
- There are large penalties that can come from the money when you take advantage of early withdrawal programs. These penalties can cause a significant reduction in the interest rate in the case that the money is withdrawn early from the account.
Learning the benefits and drawbacks to choosing certified deposits as your investment of choice can be an effective way to determine if they are truly the right investments for you. Through careful consideration and meeting with investment advisors, you can make the right decisions when it comes to choosing the investments.
To take advantage of these types of accounts and open a CD you can easily make an appointment with the representative that works at your bank and have the deposit ready which can be made into the account. A simple form can be filled and paperwork signed outlining the terms and conditions of the CD and you can be on your way to fulfilling a bright investment future if you have chosen CDs as the deposits and investments of choice.
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You left out arguably the biggest disadvantage of CDs, all returns are fully taxable as ordinary income. What about the fact that most banks give you about a 10 day window in order to make a decision about your CD or they automatically renew it. This drives me nuts that they take the liberty to make the decision for you if you aren’t able to respond within their small time frame.
Cds bore me for some reason. It’s seem like they were how uneducated parents suggested saving. Since all of the rates are so low, I prefer to go with online savings accounts. The liquidity is worth the .5-1% difference.
Do you use CDs or anything else for short-term savings?
Austin @ Foreigner’s Finances