An investment option that offers low risk to investors is a certificate of deposit. Also known as a CD, a certificate of deposit can offer a competitive return on investment compared to a savings or checking account. As long as the account is opened through an FDIC backed institution, investors can rest easy knowing their entire investment is safe and secure.

Unlike investing in real estate or the stock market, any FDIC insured CD is safe up to the current limit of $250,000. That means if an investor opens up a $100,000 certificate of deposit account, their entire investment is safe. On the other hand, investors who invest the same amount in stocks are not guaranteed that their initial investment is safe.

These types of investment accounts offer many different options when it comes to the length of the account as well as the interest rate. Generally, accounts with shorter terms have the lowest rates of return. For example, a 12-month CD may offer a 1% return whereas a 60-month deposit account could offer over 2.5%. Each CD is different and the rate depends on the bank or credit union issuing the account. Be sure to research the highest CD rates to get the best return on your investment.

Disadvantage of a CD

It is important to point out the downside of investing in a CD. One main disadvantage of opening a certificate of deposit account is the below-average returns compared to riskier investment choices like stocks or real estate. In a low interest rate environment that we are in today, rates on CD’s have fallen sharply. Investors have the potential to earn much higher returns if they decide to invest their assets into stocks instead.

Final Thoughts

While the potential for returns in other investments is much higher, a certificate of deposit is still a safe and secure place to put one’s money. Since they can offer significantly higher returns than other interest bearing accounts, a CD is an important tool for building personal wealth. Factor in the added security and there is no wonder why certificates of deposit remain a popular investment tool.