Long-term certificate of deposit overview

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Long-term certificate of deposit overview

Overview: Certificates of deposit (CDs) are issued by banks and typically offer higher interest rates than savings accounts. And when interest rates are expected to fall, long-term CDs may be a better option, allowing you to continue earning money at higher interest rates for years.

Who is it good for? Because of their safety and high payouts, CDs can be a good choice for retirees who don't need immediate income and can keep their money in storage for a while.

CDs are a good fit for risk-averse investors, especially those who need money at a specific time and can tie up cash for a little more return than they can find in a savings account.

Risk: CDs are considered a safe investment. However, they carry reinvestment risk. That is, the risk is that when interest rates fall, as we saw in 2020 and 2021, investors will see reduced returns when they reinvest principal and interest in new CDs at lower interest rates.

The flip side risk is that interest rates rise and investors won't be able to take advantage because they already have their money parked in CDs. However, with interest rates expected to fall in 2024, it may make sense to fund a maturity CD so you can earn higher returns over the life of the CD.

It is important to note that inflation and taxes can significantly reduce the purchasing power of your investments.

Compensation: With CDs, your financial institution pays you interest on a regular basis. Once it matures, you will receive your original principal and accrued interest back.

Where to Buy: Bankrate's list of the best CD rates will help you find the best rates across the country, rather than relying on rates available only in your area.

Alternatively, many brick-and-mortar banks and credit unions offer CDs, but you're unlikely to find the best price locally.