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Advantages and Disadvantages of a Certificate of Deposit for Savings

Jenna Taubel

Jenna Taubel About The Author

Jun 26, 2017 8:00:00 AM

A great tool for earning interest on your money is a Certificate of Deposit (CD).  A CD is essentially an agreement between you and your credit union or bank where you promise to not withdraw any cash within a specific period of time, and in return the credit union or bank pays you a higher rate of interest on the money used to fund the CD.

The period in which you are not allowed to withdraw any cash varies depending on the terms of the CD. The terms can be as short as three months for shorter term goals, all the way up to five years for longer term investing goals. Generally speaking, the longer the terms of a CD, the higher the interest rate will be.

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Pig Bank on Calendar | First Alliance Credit UnionThough Certificate of Deposits are considered to be a solid tool for investing, they also have their own strengths and weaknesses that should be considered.  The following is a list of the advantages and disadvantages of a Certificate of Deposit to consider:

With these advantages and disadvantages in mind, it is wise to consider that CD advantages usually outweigh the disadvantages. CDs allow you to grow your savings without hassle. You can easily compare different types of CDs with the help of online resources, and you can find one that best suits your needs.

Summary of Certificates of Deposits

Certificates of Deposit (CD) are useful for people looking for a way to save money while earning a relatively high interest. This not only helps you save money, but also earns you interest without requiring any effort on your part. The disadvantages of CD’s are minor and typically outweighed by their advantages.

Listen to our Good Money Moves podcast to learn more about using a Certificate of Deposit to save money and meet your financial goals!