Guaranteed Returns

Money deposited into a C of D has a guaranteed rate of return. This is the interest rate paid by the bank to the depositor for the use of his money for the life of the transaction. C/D deposits typically earn interest at a higher rate than typical savings accounts. Commercial lending institutions may pay the depositor 3% to 5% interest, while online banks might pay slightly more. You may pay early withdrawal fees if you remove the money prematurely, so be prepared to leave the money in the account for the agreed time. This is typically 6 months, 1 year, or several years. Longer deposit periods typically earn more interest.

No Risk of Loss

The stock market is well-known for its volatility, with the Dow-Jones Industrial Average (DJIA) sometimes zooming up or down hundreds of points daily. Stocks can lose or gain substantial value very quickly. Certificates of Deposit, on the other hand, sit quietly in their banks, steadily earning you several percent interest. These deposits offer gains and peace of mind that the stock market cannot guarantee.

Funds Are Federally Insured

All deposits in U.S. banks are guaranteed by the federal government up to a monetary limit by the Federal Deposit Insurance Corporation (FDIC). If the bank fails, you are guaranteed to receive your money back, up to the FDIC limit. If you own stock in a company which fails, your stock becomes worthless and your money is lost.

No-Loss Rollovers

Another excellent advantage of these Certificate deposits is that the money, plus the interest earned, can be rolled right back into another C/D account at the end of the term. That means that you'll be earning interest on both the initial deposit, and on the interest earned, after the rollover. You risk losing some of your money when rolling over an IRA or 401(k) from one account to another due to changing stock prices, but that won't happen with deposit certificates.

CD's offer many benefits for the conservative, long-term investor. That is why some financial managers consider Certificate of Deposit rates to be better, and certainly much safer, than the unstable stock market.