And you can’t get much more secure than a humble Certificate of Deposit (CD).
Essentially, a CD is a savings account that is fixed in both initial deposit and time. In exchange for holding your money for six months, a year, two years, etc., the issuing bank will pay you a set interest rate, which is locked in at the time of purchase. Most of the time, this rate is higher than what you would get in a regular savings account.
CDs can be issued by banks or purchased through various brokers in the secondary market. And while they lock your money for a set period of time, investors have the option to end their CD early, minus some fees and forfeited interest.
So why should conservative investors consider them? Guarantees for starters. Since they are issued by banks, certificates of deposit are included FDIC Insurance that protects you in the event of a bank failure. Second, investors know exactly how much interest and return the product will generate over a given period of time. Speaking of interest, depending on the terms of the CD (and length), many banks pay that interest monthly or quarterly in cash into a checking or brokerage account. This allows investors to have an income stream from a very safe investment.
Best of all, CDs are once again paying real interest to their investors.
Thanks to the rise in interest rates, CD yields have risen from around 1% to well over 4.5%. According to Fidelity, investors can earn a 12-month CD at a rate of 4.65%. Even if you lock money for 3 months you still get 4.25%. That’s a pretty good guaranteed return considering the safe nature of the product.
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