Although investment is prone to risk, there are actually some securities that have so little risks. In other words, they are considered as risk-free or riskless. However, this kind of investment might yield low or expected return with no risk. Most investors are choosing this investment for emergency savings or holding assets so that it is accessible easily. The example of riskless investments and securities is certificates of deposits (CDs).
A certificate of deposit is in the form of a savings product earning interest on lump sum for a fixed period of time. However, it is important to note that CDs are different from savings accounts. In CDs, the money should be untouched for the entire term or risk penalty fees. Most of them have higher interest rates than savings accounts as an incentive for lost liquidity. CDs are famous for a safer and more conservative investment compared to stocks and bonds. The major benefit is that CDs offer a non-volatile and guaranteed rate of return although the opportunity is low. Starting a CD is actually the same as starting at any standard bank deposit account.
The difference in CD is that, you agree to when you sign on the dotted line although the signature is digital. It is a special type of savings instrument, just like a savings or money market account. CDs provide a way to put money away for specific savings goals.
CDs are different from many other investments because they are fixed and safe. Moreover, they are insured. Interest rates can be much higher than the rates paid by the bank accounts. Without taking risk and volatility of the market CDs become attractive.
