Do you have extra money that you want to put to work by investing it, but you don't like all of the risks associated with it? If so, you may be interested in using a certificate of deposit. Here are some advantages and disadvantages of using a certificate.
Certificate Of Deposit Advantages
The main reason that people use a certificate of deposit as an investment is that there is a guaranteed return. You purchase a certificate of deposit for a specific amount of time with a fixed rate APR. This allows you to easily know how much money you will receive when the terms of the certificate of deposit are complete, which cannot be said for other types of investments.
This means a certificate of deposit is a very low-risk investment. Even if you need to withdraw the money from a certificate of deposit early, you won't be penalized more than some of the interest that you have earned. You'll never lose less than your original investment.
If you are worried about the need to cash out on your certificate of deposit early and losing that interest, know that the terms are often flexible. You can select from a wide range of lengths that work for your investment goals. It can range from several months to several years, with a longer certificate of deposit earning more interest.
Certificate Of Deposit Disadvantages
Many people do not like investing in a certificate of deposit because of the low return. While the return is guaranteed, there are other types of investments that can offer a much bigger return. It's even possible for the investment that you make to be lower than the current inflation rate.
There is also an opportunity cost to investing in a certificate of deposit. You need to determine what else you could be doing with your money, which could be investing it or spending it on something specific. For example, using the money to renovate your home could be considered an investment if you plan to sell in the future because it could add value to the property.
The risk of losing your earned interest means that you'll not want to cash out on the certificate of deposit early, because you could end up with minimal or no gains at all. This is not true of other investments, which you can sell at any time when you need the money.
Learn more about how to get a certificate of deposit.
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