Are CDs a good investment?

Rob (No)

CDs probably shouldn’t be at the top of your list if you're looking to invest now and for several reasons. For starters, investing in CDs mostly comes with fixed terms; accessing any of the funds before the maturity date means you have to incur some penalties or forfeit some of your gains. CDs aren't ideal compared to other investment opportunities in the market, which are more liquid and flexible, especially in an emergency.

If you’re particularly interested in ROI, there are also better alternatives currently. While more risky, dynamic investments such as stocks and mutual funds generally offer better returns, depending on a person’s risk tolerance. In 2023 specifically, the returns on CDs have been abysmal as a result of rate hikes by the Federal Reserve to combat inflation. Since the return is fixed, inflation also means any returns on investment do not necessarily translate to profit gains due to the reduced purchasing power of the currency. 

Unlike investments such as EFTs, Index Funds, Dividend Stocks, and Real Estate, CDs also do not enjoy tax advantages and deferrals. This means the returns on this investment are generally taxable, further diminishing the net returns and making them even less enticing. 

The key issue is the lack of flexibility CDs offer as an investment opportunity. They deny an investor the option to maximize their investment by modifying their investing methods in response to market fluctuations. CDs are an outdated strategy and less preferable to newer, more modern investment opportunities that are more versatile and offer better returns. 

Elliot (Yes)

Like all fixed-income investments, Certified Deposits or “CDs” offer excellent levels of investment safety while providing solid returns and optimal flexibility. Interest rates have been quite encouraging for the modern investor, and yields of more than 5% are certainly within the realms of possibility. Factoring in economic uncertainty, CDs represent a safe option for those who aren’t quite sure about what the future will bring. Locking in a relatively high interest rate with a 5 or 10-year return is a no-brainer—and it is certainly easier than timing the market or picking individual stocks. 

CDs are excellent for retirees and other risk-averse individuals. Returns are essentially guaranteed, and the addition of FDIC protection provides even more confidence for the average investor. Many people cannot afford to take risks due to their advanced age or their limited income. If an investor runs the risk of losing their entire investment, they must have the ability to recover. If an investor lacks this ability, a CD represents a clear choice. 

Although many CDs require an investor to “lock away” their funds for an extended period of time, there is considerable flexibility within this investment class. First of all, investors can choose from a variety of durations that can span from as short as 1 year up to 30 years. In addition, relatively liquid 'no-penalty' CDs are available, allowing investors to move their funds away from these investments if their thesis or financial situation evolves over time. Ultimately, an investor can’t really go wrong with a CD, and it certainly cannot be referred to as a “bad investment” in the modern era.