Investing in Certificates of Deposit (CDs): Why Every Investor Should Consider Them

Why Every Investor Should Consider CDs in Their Portfolio

These days, we have more access to information to help guide our investing decisions than ever before. There are a wide range of places to park our money. Cryptocurrencies are dramatic, stocks can be solid dividend payers, and even savings accounts are paying out a lot more than they used to. So why would you ever choose a certificate of deposit (CD) out of all the options you have?

Certificate of Deposits Aren't Sexy

The advantages of CDs are abundant, and include the following.

• You'll get a guaranteed pay-out at the end of your term: There's no guesswork. You don't have to wonder if the market will shift, changing the value of your investment. You put your money in, you're promised a 5% CD interest rate, and at the end, you get your money back, plus a 5% return rate.
• Your money is locked in, so you're incentivized to not spend it: CDs lock your money in at your bank, where you're encouraged to leave it alone to maturity. If you don't, you'll pay a penalty.
• It takes very little to open a CD in a lot of cases: You can find CDs with minimum deposits as low as $0, which means you can open a CD somewhere even with a small amount of money.
• CDs are truly passive investments: Unlike other investments, with CDs, you can simply 'park your money and go off and do whatever' as they require very little effort to manage.

No matter what kind of investor you are, a certain percentage of your portfolio should be entirely safe, no-lose investments. CDs can balance your risk against other investments and provide a way to start building a solid rainy day fund.