CD is an abbreviation form of ‘Certificate of Deposit.’ Until some years, this was a very popular method used for investing. This Certificate of Deposit is a contract between the investor and the bank, wherein the investor agrees to keep an amount as ‘deposit’ in the bank’s account for a fixed interest rate for a time decided mutually.

There are several advantages of using this method. The amount of interest made is directly proportional to the time period for which the money has been deposited. This clearly implies that the longer the money stays in the bank, the more will be the amount of interest earned. The security and loss risk is extremely low in this case. Federal Deposit Insurance Corporation insures the CDs which makes these deposits safer than other methods. Smaller banks have better CD deals. However, there are disadvantages of CDs as well. When a person invests through CD, the amount deposited is locked and is unavailable for the time period agreed to the contract and if one decides to withdraw money before time, he/she has to pay a penalty. Secondly, Inflation does not affect the interest rate of the CD. It is beneficial to some extent, but it also reduces the chances to invest in a better plan which will bear greater profit as compared to CDs.

CDs at their early stages were very profitable but as time passed by, their profitability has declined. It is expected that the CD rates will not be able to go according to the inflation which will stop investors from opting for this method. It can be said that CDs are becoming a thing of the past, as today the investor has multiple options.

Some of the options available for today’s investors are:

Stock Market: Though investing in the stock market is way more risky than the CDs but it has the potential to bore way higher profits in comparison to the CDs.
Bonds: Another very famous method of investing is Bonds. The bonds are a stable method of investing than the stock market but even they bear risk.

Money Markets: This method of investing allows investors to withdraw their money without imposing a penalty. The money market accounts, like CDs, are insured by FDIC.

Savings Account: These accounts are fully insured by the FDIC. The money deposited can be used or withdrawn without penalty.

Mutual Funds: This method is being used since a very long time. The price of the mutual fund is established at the end of the day, unlike the individual stocks.

Peer-to- Peer Lending: This method was initiated in the year 2006 and has been gaining popularity since then. This method introduces a borrower and a lender without the indulgence of a bank.

All these methods have their advantages and disadvantages but investors are leaving the conventional CDs behind as according to them they have other better – investing options. At the time of investments, several considerations are looked upon and the most suitable method at that time is selected. What would be your investment option? Would you like to invest in CDs? Share with us in the comment box below!

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