There are plenty of CD advantages, mostly around security and predictability. They include:
A fixed interest rate
When you open a CD, you decide exactly how much you want to invest and how long to invest. Many banks allow you to open a CD account online. In exchange for keeping your money in the account for the time agreed, you receive a fixed interest rate.1
Higher returns
Those average rates are typically higher than you’ll receive in a traditional savings account.2
Predictable returns
Unlike other investments, CDs are considered one of the safest savings options.1 There’s no question of how it will perform or how long you’ll keep it. You’ll invest a specific amount at a locked rate for a specific amount of time.
Interest options
Often people assume the interest earned on a CD can only be collected once it fully matures. However, many banks allow customers to choose to receive the earned interest more often—either monthly, every six months or annually.1
Ladder options
A CD ladder is an investing strategy in which customers invest in CDs of increasing lengths—1 year, 2 years, etc. This lets investors tap into their money along the way while keeping some of it invested for a longer period.
Security
One of the biggest CD benefits is security. Like checking and savings accounts at federally insured banks, CD accounts are insured by the Federal Deposit Insurance Corporation, FDIC for short, up to the allowable limits.1
FAQs
CDs offer higher interest rates than traditional savings accounts, guaranteed returns and a safe place to keep your money. But it can be costly to withdraw funds early, and CDs have less long-term earning potential than certain other investments.
What are the weaknesses of a CD? ›
7. Compact Disks
| Advantages of CDs | Disadvantages of CDs |
|---|
| Small and portable | Fairly fragile, easy to snap or scratch |
| Very cheap to produce | Smaller storage capacity than a hard drive or DVD |
| Most computers can read CDs. If there is no CD drive, a DVD drive can usually read them | Slower to access than the hard disk. |
1 more rowLimited access to your cash
Plus, you'll need to withdraw the entire balance from your account, forfeiting any potential interest you would have earned over the remainder of the term. There are some no-penalty CDs that don't charge this fee, but they're typically not available in longer term lengths.
Is CD good or bad? ›
Is it worth putting money into a CD? For some people, it can be worth putting money into a CD. If a person is seeking a riskless investment with a modest return, CDs are a good bet—you'll earn a higher rate than you would with a checking or savings account, but you'll have to commit your funds for a fixed period.
What is one advantage of a CD? ›
Along with savings accounts and money market accounts, CDs are some of the safest places to keep your money. That's because money held in a CD is insured. So long as you purchase your CD account through an FDIC-insured bank, you're covered in case the bank shuts down or goes out of business.
What are the advantages of a CD? ›
Unlike most other investments, CDs offer fixed, safe—and generally federally insured—interest rates that can often be higher than the rates paid by other bank account types. And CD rates are generally higher if you're willing to commit to longer periods.
What is one disadvantage of a certificate of deposit? ›
One of the bigger disadvantages of certificates of deposits is they're subject to taxes. Any interest earned must be claimed in the year it was earned and not just the year when your CD terms. Depending on your income and deductions, this could lower your tax refund received.
What are the disadvantages of CDs and DVDs? ›
Are there any disadvantages to using CDs/DVDs for data storage? One major disadvantage is that they're susceptible to physical damage - scratches, fingerprints etc., which could cause issues when reading/writing data from/to them.
Why is my CD losing money? ›
You could lose money in a CD if you withdraw before you've earned enough interest to cover the penalty. Brokered CDs don't allow early withdrawals, but you could lose money if you sell them on a secondary market at a bad time.
Are CDs safe if the market crashes? ›
Market Crashes and CDs
Even if the market crashes, your CD is still safe. Your interest rate won't change, and your money is still insured. But, keep an eye on interest rates. After your CD term ends, you might find that new CDs have lower rates if the economy is still struggling.
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal.
Are CDs worth it right now? ›
If you don't need access to your money right away, a CD might be a good savings tool for you in 2024 while average interest rates remain high. CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor.
Do I pay taxes on CD interest? ›
Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
Do banks charge a fee for CDs? ›
Certificates of deposit generally have only one type of fee: an early withdrawal penalty. CDs, unlike other bank accounts, require you to lock up a fixed sum of money for a set period of months or years. So breaking the seal is what can cost you.
Are CDs worth it in 2024? ›
If you're investing in a CD, the interest rate may not be high enough to keep pace with inflation. That means even though you're earning a return, it may not be as valuable today as it would be in a period of low inflation.
What are the strengths and weaknesses of certificates of deposit? ›
The most prominent benefits of CDs are their low-risk nature, guaranteed interest and a wide array of terms and options. The most prominent disadvantages of CDs are their illiquid nature, heightened exposure to inflation risk and inferior risk/return profile relative to longer-term investments.
Are CDs a good investment now? ›
CD Investing Pros and Cons in 2024
CDs can be a smart financial move at times, but not so great at others. In the past, other investments earned higher rates than even the best CDs could earn. But, in today's high-interest-rate environment, CDs might be a great option.
