Significance

• The purpose of investing in a CD is to earn steady interest on your money, which you will receive if you wait until the maturity date. Your initial deposit will never decline in value, unlike stocks or bonds. Also, you have the potential to earn higher interest rates than those paid by bank savings accounts. If you are risk-averse, living on limited funds or want to invest without losing money, a CD may be the right choice.
  
  

Features

• Certificates of deposit are insured by the Federal Deposit Insurance Corp. up to $250,000, which makes CDs a safe investment option.
  
  

Size

• Some banks require a minimum deposit to open a CD. The minimum deposit can range from as little as $100 to $1,000 or more.
  
  

Considerations

• While CDs provide a guaranteed return, if interest rates go up during the CD's term, you won't have that money available to take advantage of the higher rates. If rates are rising, a long-term CD is not the best investment.
  
  

Warning

• If you withdraw funds before the CD's maturity date, you can face a penalty charge.
  
  

Potential

• You have the potential to earn more with a CD than your bank savings account. Compare the interest rates and the frequency of compounding with your current savings account because you could earn more if the APY on your CD is higher and/or compounded more frequently than your savings account.