According to the U.S. Securities and Exchange Commission (SEC), people who are in the market for a low-risk investment often choose certificates of deposit (CDs). A CD generally offers a better interest rate than a regular savings account, because you agree to leave your funds untouched for a period of time.You can withdraw your money prior to the date of maturity, but you may be charged an early withdrawal penalty. There are several advantages to investing in certificates of deposit
Insured Investment
When you invest in a certificate of deposit, you are in effect loaning your money to a financial institution that will be repaid with interest when the CD matures. During the loan period an investor is never at risk of losing his initial deposit. Unlike other investments, certificates of deposit are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). When it's time to cash in or redeem your CD, you will receive 100 percent of your initial investment along with any earned interest.
Minimal Contribution & Commitment
According to Care on Credit.com, certificates of deposit usually carry a fixed rate of interest and are relatively affordable to open. Most banks and financial institutions will allow you to open a CD with only $500. The longer the term CD is, the higher its interest rate. The commitment periods generally range from 3 months to 5 years.
Laddering
Care on Credit, com says "laddering" is an investment strategy that defines the purchasing of multiple CD's with various terms. This technique ensures that all of your funds are never tied up at the same time and may help avoid early withdrawal penalties if you need cash immediately. For example, you may invest in a 6 month and a 12 month term certificates of deposit. When the first one matures you can redeem the cash or deposit it in a 12 month CD.
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