“CDs are a single step up from savings accounts in terms of both risk and reward,” he says. “The increased risk is because a CD must be held to its maturity, whereas savings accounts allow withdrawals at any time.”
Every investment is a risk/reward trade-off. CDs are a single step up from savings accounts in terms of both risk and reward. The increased risk is because a CD must be held to its maturity whereas savings accounts allow withdrawals at any time.
CDs are widely recognized as one of the safest investments. Their valuation is highly predictable for both the investor and issuer. Additionally, they are insured by the FDIC which eliminates credit risk for the investor.
Neither CDs nor savings accounts are good investments when interest rates are lower than inflation. In this environment, nominal investments tend to underperform real investments. Today, inflation risk significantly outweighs credit risk and most investors should look at securities with more upside potential than CDs.