The Power of CDs, and Why You Should Take Advantage of Them
Certificates of Deposit, commonly referred to as CDs, are a staple in the world of savings products. While they might seem like a simple, traditional savings tool, their benefits are quite powerful, especially in today’s uncertain financial climate.
A CD is a type of savings account offered by banks and credit unions that typically offers higher interest rates than traditional savings accounts. They are also called time deposits because you must keep your money the CD for a fixed amount of time, known as the term length, which can range from a few months to several years. Here are some reasons why you might want to consider adding CDs to your portfolio.
Safety and Security
One of the foremost benefits of CDs is the safety they offer. CDs are a low-risk investment option because they are insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per account holder. This means that even if the bank or credit union were to fail, your money would still be protected. Additionally, fixed rate CDs offer guaranteed returns on your investment since the interest rate is set at the time you open the account and will not change throughout the term length.
This makes a CD an ideal choice for conservative investors or anyone looking to preserve their capital.
Predictable Returns
In an era where market volatility can unsettle even seasoned investors, the predictability of CDs stands out. Unlike stocks or mutual funds which can fluctuate in value, CDs provide a fixed return on your investment. When you open a certificate of deposit, you lock in an interest rate for a specific term. This means you know exactly how much you’ll earn, which can be particularly appealing for those who value stability and planning. You can also use CDs with different terms to build an investment ladder timed to provide funding for major life events such as graduations, vacations, new home purchases and retirement. Whether it’s for a short-term goal or part of a long-term strategy, CDs offer a reliable income stream.
No Maintenance Required
Another appealing benefit of CDs is their "set it and forget it" nature. Once you've invested, there's no need to actively manage your account. This is ideal for busy professionals who don’t have the time or expertise to monitor investments closely. CDs require minimal oversight, allowing you to focus on other aspects of your financial life while your money works for you.
Higher Interest Rates Compared to Savings Accounts
While savings accounts provide easy access to your funds, they often have lower interest rates. CDs, on the other hand, typically offer higher rates in exchange for locking in your money for a set period. This makes them a great option if you’re looking to maximize your returns without taking on the risks associated with more volatile investments.
Diversification of Your Financial Portfolio
Finally, CDs can play an important role in diversifying your portfolio. By balancing riskier investments with the stability of certificates of deposit, you can protect your overall financial health. This is especially beneficial in a market downturn when the stability of CDs can help cushion the impact on your broader investment strategy.
For more information and advice on how certificates of deposit fit within your overall investment strategy, talk with your investment advisor or planner. The benefits of CDs are clear. Whether you're planning for retirement, saving for a big purchase, or simply looking to grow your wealth securely, certificates of deposit offer a valuable, low-risk option. Check out our array of great rate CD options here.
