The Pros and Cons of Bank CDs and Their Investment Potential

Bank CDs, or bank certificates of deposit, have plenty of pros and cons. While they don’t offer major profits over years and years the way that stocks and mutual funds can, they do offer short-term rewards.

Credit union and bank CDs are like savings accounts on steroids. They offer you a better rate than a plain savings account because you’re agreeing to hold onto the CD for a certain length of time, such as three months, six months, or a few years. When the term is over, you can collect your principal and interest from your bank CDs and do as you please with the investment. However, if you want to withdraw your money before the term is up, you’ll need to pay a penalty.

Why would someone choose bank CDs over another investment strategy? The typical customer is someone who is saving for something in the near future, e.g. a down payment on a home, and does not want to risk any of the money in the short-term. The more money you put into bank CDs, and the longer the term, the better the interest rate.

Often smaller banks and credit unions have the best rates, because they may need to suddenly increase their deposits. You can check around for the best rates online or by calling local banks and credit unions.

While bank CDs won’t make you rich, they are a surefire way to protect your money in a very low risk way. The interest rate is generally fixed, although some institutions offer variable bump-up rates, which can help you take advantage of climbing interest rates.