A certificate of deposit, is a certificate issued by a bank, indicating that the investor has deposited a sum of money for a specific time period and at a specific interest rate. So, the money deposited, is for a given period of time and at a fixed rate of interest.

Advantages of Certificate of deposit.

The main advantage of CD’S is that they are relatively safe and you are able to know your returns, well before time. Also, you don’t have to depend on the stock market.

Gaining access to the national CD market, involves low minimum investment. The returns of the principal amount on your CD’S and all your interest payments, will   automatically get credited to your account. Early withdrawals with regard to CD’S are not permitted. In circumstances like death and disability, early withdrawals, without interest penalty is permitted. You can sell your CD’S  in the secondary market, before the maturity date. In that case, you will get paid depending on the market conditions at that time.

Disadvantages of Certificate of deposit.

Once you have invested in CD’S, you will not be allowed to touch that invested money,  depending upon the time limit. If you try to get it out before its maturity period, then you will have to pay a heavy penalty to do so. Since the interest rate is fixed for the term of the CD, you are liable to bear interest rate risk.