Drawbacks of Investing in a Certificate of Deposit

Do you have a certificate of deposit, or a COD, in your investment portfolio? Chances are good that you aren’t betting on it to yield you a whole lot of money in the near future. While a COD can be a safe investment to make, it really doesn’t offer any real money making potential unless you are willing to sock your money away for a good, long time.

What are some of the biggest drawbacks to investing in a COD? The worst reason to invest in a COD is that you are forced to watch your money sit in the bank no matter what. If you choose to remove your money, you might have to pay a penalty to do so. What happens if you need that money for something pressing?

The interest rates for a COD are really low compared to other forms of investments. While that might not be a bad thing considering that the economy is flat right now anyway, it can put you at a disadvantage if the economy were to suddenly pick up. Not only are the COD’s going to be giving you a lower yield than normal, it will be giving you a low rate even for a COD. Most COD’s have fixed interest rates over the life of the COD.

This means that a COD becomes a less attractive way to invest if you are looking for a place to sock away a few thousand dollars and watch it really take off for you. It won’t get you the same returns that the stock market will. A COD is really more for someone who has a small college fund and doesn’t want to blow it because they saw a flat screen TV for exactly the amount that was in the fund.

The bank has most of the leverage when it comes to how much you can make from a COD. The bank only has a limited means to control the interest rates, but it does have leverage to tell you how long the COD has to stay in there. It is usually a six month or a twelve month period of time for a COD. This means you couldn’t just put it in the bank for 30 days, or for seven months.

A COD is fine if you just want your money kept safe and out of your hands for awhile. However, if you are looking to make some big money, or have flexibility with your money, you might want to put it into another investment vehicle.