Advantages of buying certificates of deposit

There are many reasons why the benefits of certificates of deposit are compelling. In the current market and economic situation, those reasons only get better. The benefits of a CD are many and the time when only farmers wanted to put their money away until they bought their spring seeds took advantage of the certificate of deposit benefits.

Today’s financial markets have two types of investors: the instant-gratification junkies and the long-term investors. The instant gratification types have little interest in anything other than very short-term certificates of deposit and often use them only as a way to store money while they wait for something else.

For the serious long-term thinker, however, the benefits of a CD are enormous. Because certificates offer a fixed interest rate for a set period of time, they make it easy to plan ahead and provide a virtual guarantee of payout. Unless the bank fails, the money is there (with interest). Even in bank failures, your first deposit will not be lost thanks to FDIC insurance.

Rates on savings and other floating interest rates are in constant turmoil: fluctuating regularly, going up and down without warning. One of the biggest benefits of a certificate of deposit is that lack of turmoil and change. For example, for a 5-year CD term, you are guaranteed that interest for those five years, regardless of what the market does.

Currently, those same interest numbers are another benefit of certificates of deposit. High-interest accounts such as money market savings accounts don’t compete well with CDs. For those who think in terms of 1, 3 and 5 years ahead, only the benefits of a CD can provide a real and stable return.

Many IRA, mutual fund and other investors will use the stability of the benefits of a certificate of deposit as a baseline for their portfolios.

So consider the benefits of certificates of deposit as you look at your next long-term financial goal, whether that’s 6 months from now or 6 years from now.

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