Investing your money is one of the best ways to grow your wealth. With so many investment options available, deciding where to put your money can take time and effort. One often overlooked option is the addition of Certificates of Deposits (CDs) to your investment portfolio. CDs are a low-risk investment option that can diversify your holdings and provide stable, predictable returns.
What are Certificates of Deposit (CDs)?
CDs are a type of savings account that typically offer higher interest rates than traditional savings accounts. They work by depositing a certain amount of money with a financial institution for a set period. The time period or term can typically ranging from a few months to several years. During this time, the money earns interest at a fixed rate. At the end of the term, you receive the principal and the accumulated interest.
7 Benefits of adding certificates of deposit to your investment portfolio
- They are more stable than high risk investments. One of the main benefits of adding CDs to your investment portfolio is that they can provide a stable, predictable source of income. Unlike stocks or other high-risk investments, CDs are not subject to market fluctuations and are not affected by changes in interest rates.
- You can rely on a steady stream of income from your CD investments as they begin to mature. This can be particularly useful for those who are retired or nearing retirement.
- CDs are a low-risk investment option. This makes them a good choice for those who are risk-averse or looking to diversify their holdings. CDs are considered a safe investment because they are insured by the Federal Deposit Insurance Corporation (FDIC). This means that even if the financial institution holding your CDs were to fail, you would still receive the full value of your investment (up to the insured limit).
- CDs offer a range of terms and interest rates This allows you to tailor your investment to your specific needs. For example, if you want a short-term investment with a low minimum deposit, you might choose a 3-month CD with a lower interest rate. On the other hand, if you are looking for a long-term investment with a higher return, you might choose a 5-year CD with a higher interest rate.
- CDs can be used as a tool for laddering your investments. This involves investing in multiple CDs with different maturity dates, creating a staggered schedule of investment returns. For example, you might invest in a 1-year CD, a 2-year CD, and a 3-year CD, with each CD maturing one year apart from the others. This allows you to take advantage of higher interest rates on longer-term CDs while still having access to some of your funds regularly.
- Adding CDs to your investment portfolio can provide a sense of security and stability. Knowing that a portion of your money is invested in a low-risk, insured account can help to ease some of the anxiety that comes with investing in higher-risk options.
- CDs offer fixed interest rates. This enables you to plan and budget accordingly, knowing exactly how much return you will receive on your investment.
Drawbacks of investing in CDs
Of course, there are some downsides to investing in CDs. One major disadvantage is that CDs typically offer lower returns than other investments, such as stocks or mutual funds. Additionally, you may be subject to penalties or fees if you need to withdraw your funds before the CD term is up.
Summing it up
In conclusion, adding CDs to your investment portfolio can be a smart choice for those looking for a low-risk, stable investment option. CDs offer a predictable income source, are insured by the FDIC, and can be tailored to meet your specific needs. While they may not offer the highest returns, they can provide a sense of security and diversification to your overall investment strategy. As with any investment, it’s important to do your research and carefully consider your options before deciding where to invest your money.
Get a great rate on a CD!
Shop around to find the best CD rates. Choice One Credit Union is currently offering a limited time Certificate of Deposit rate of 4.06% APY* for a 6-month certificate term. At Choice One, all credit union deposit accounts, including Certificates are insured by the NCUSIF** for up to $250,000. Tap to learn more about the Choice One Credit Union certificate special and to view CD rates.
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*APY = Annual Percentage Yield. Minimum deposit of $500. Rates subject to change at any time.
**The NCUSIF is the National Credit Union Share Insurance Fund. It is a federally insured program governed by the NCUA (National Credit Union Administration).