CD Bonds, Are The a Good Investment

Certificates of deposit are sometimes referred to as “CD bonds”.  While not the same as a standard savings bond, CDs are a type of savings in which people invest.  You would conduct research to find the highest interest rate, the most frequent compounding of the interest, most flexible terms, and the issuer that offers the type of CDs you want.  From there, you would determine the amount of money you want to invest although some banks will have minimum requirements.[br]

Certificates of deposit are sometimes referred to as “CD bonds”.  While not the same as a standard savings bond, CDs are a type of savings in which people invest.  You would conduct research to find the highest interest rate, the most frequent compounding of the interest, most flexible terms, and the issuer that offers the type of CDs you want.  From there, you would determine the amount of money you want to invest although some banks will have minimum requirements.[br]

CD bonds can be a good investment but only if they are handled in a certain way.  For instance, if the plan were to invest money knowing that you may need to take it out prior to maturity, then CD bonds might be a decent option.  However, whether you choose a traditional savings bond or a CD bond, realize that you would be penalized for taking money out early.  In the case of a savings bond, you would not be allowed to touch the money for a full year whereas CD bonds are somewhat more flexible.

Although most people have a good understanding of CD bonds, few know why they are considered better than savings bonds.  As mentioned, with a savings bond, if you needed to withdraw money early you could not touch any of it for a full 12 months.  However, with CD bonds, you can take money out at any time, even a week after making the investment but you would be penalized.

Another difference between CD bonds and savings bonds is the amount of time the investment can be locked.  Typically, a certificate of deposit would have term options that range from one month to six years.  However, when looking at savings bonds, most average 10 years although they can go to 20 years or more.[br]

Additionally, with CD bonds, even if the investment starts with one interest rate, it could change whenever the market fluctuates but with savings bonds, the rate is fixed.  You will also find that CD bonds are issued through banks, credit unions, and certificate of deposit brokers.  It is important to know that the money you would only be offered protection via FDIC insurance if you choose a bank, which is an entity of the government.  On the other hand, savings banks are issued by the United States Treasury Department.

Some types of CD bonds do have tax benefits but not very many.  For savings bonds, when set up with the rate for 10 years, for the preceding month if rate adjustments are made for any reason, they would be tax deferred.  It is true that Treasury savings bonds are paying a higher interest rate than CD bonds but once the economy stabilizes, savings bonds will plateau.  With certificates of deposit, the higher the interest rate climbs the higher interest you would earn without a cap.

There are differences between CD bonds and savings bonds and sometimes they can be a little complicated.  Therefore, if you are considering an investment in one or the other but you still have questions, you could always sit down with a representative from the bank or meet with a financial advisor for guidance.