Pros and Cons of CDs - FOX 10 News | myfoxphoenix.com

Pros and Cons of CDs

There are many investment options out there. Knowing the pros and cons of each will help you make the right decision about which one is right for you.

The pros of investing in a CD rather than other investments (stocks, money-market accounts, 401ks, etc.) or just keeping it in savings are the following:

  • Your money is in a safe place with higher interest than it would get in a savings account. While there isn’t much of a chance of making big money, it is a safe investment.

  • The FDIC (Federal Insurance Deposit Corporation) insures CDs up to $100,000 so you can be assured that you will get the money back when the CD matures.

  • You can take a loan out with a lower interest rate than the normal bank interest rate.

The cons of investing in a CD would be: 

  • There is a lower risk, so therefore lower yield. While you can be assured that your initial investment is safe, you don’t have the possibility of earning greater amounts of money that you may earn with higher risk investments.

  • The CD is susceptible to market fluctuations. While the economy is doing well, interest rates will be higher. There isn’t a need for the government to encourage people to borrow. If the economy isn’t doing as well, interest rates will decrease, allowing people to borrow money less expensively and put that money back into the economy by shopping, adding an addition to their homes, etc.

  • There is a penalty charged (unless you have a brokered CD) if removing the money earlier than the term of the CD.

If you need a place to put your money, and you aren’t interested in living through the precarious highs and lows of the market, CDs are a great option. You must make sure, however, that you can look far enough ahead to know that this is money that you will not need until the CD matures. Make sure to do your research and look around at banks and brokerage firms. These are competitive times, and you should take advantage of that while you can.

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