The Advantages of Certificate of Deposit

Investing in a certificate of deposit has many benefits. The advantages of certificate of deposit are discussed below.

The advantages of certificate of deposit are:

Convenience and ease of investing

A certificate of deposit is very easy to invest making the certificate of deposit very convenient investment vehicle. Most of the time, you can just walk into a bank and buy a certificate of deposit with a banker. You can also buy a certificate of deposit online without having to open an investment account.

FDIC insurance

Banks that are members of the FDIC (Federal Deposit Insurance Corporation) provide insurance of about $100,000 per certificate of deposit ownership of accounts in a bank. The FDIC insurance makes investing in a certificate of deposit one of the safest way to invest. Note that some money market funds have FDIC insurance and some do not, so if FDIC insurance is important to you, make sure that you know if the money market you are investing in comes with FDIC insurance. The FDIC or Federal Deposit Insurance Corporation is an independent agency of the US government.

Invest in small amounts

The investor of a certificate of deposit can invest small amounts in a certificate of deposit. This availability of small investments in a certificate of deposit differentiates investing in a certificate of deposit from investing in other investment vehicles. Money market securities, for example, usually requires a minimum amount of investment for any decent money market rate of return. The ability to invest in small amounts of a certificate of deposit investment makes investing in a certificate of deposit popular among elderly people or parents investing for their children or grandchildren.

Choices at redemption

At redemption of a certificate of deposit, the certificate of deposit can be paid out to the certificate of deposit investor or automatically rolled over into another certificate of deposit. This can be an advantage of investing in a certificate of deposit but can also be a disadvantage of investing in a certificate of deposit. Many people opt for the rolling over to a new certificate of deposit option and then forget about it. Then, when they need the money, they have to wait out another term of the new certificate of deposit, otherwise, they will have to pay the redemption penalty to cash out the certificate of deposit.

That means, when investing in a certificate of deposit, you should have a plan for when you will need the fund tied up in the certificate of deposit. If you are not sure if you will need it soon, you may be better off not investing in the certificate of deposit. Invest in a certificate of deposit if you are sure that you will not need the money before the maturity of the certificate of deposit.