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Compare CD vs. bond

Both are low-risk investment options, but which one is right for you?

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Fact checked

Wondering if you should stash your money in a CD or a bond? They’re both low-risk investment vehicles designed to help you reach your mid-term financial goals. But CDs are like savings accounts, while bonds are a type of loan.

What’s the difference between a CD and a bond?

CDs and bonds are both fixed-income investments known for having low risk and steady rates of return. But there are some key differences between the two.

CDs Bonds
Term length 3 months to 5 years 1 year to 30 years
Interest rates Generally lower than bonds Generally higher than CDs depending on the risk level
Risk None Government bonds: Low

Corporate bonds: Low to high depending on company

Funds held at A bank or credit union The company or government entity that issued the bond
Insured funds Yes No

Pros and cons of CDs

CDs are held at a bank or credit union and have three-month to five-year terms. In general, you’ll earn a higher interest rate with longer terms.

CD pros

  • Guaranteed returns. CDs are appealing because they produce guaranteed, fixed-rate returns.
  • Insured deposits. CDs are a type of savings account, so your funds are insured up to $250,000.
  • Low risk. Because you’re keeping your money at an insured financial institution, there’s little to no risk.
  • Locked-in interest rates. If you lock in a high APY and interest rates decrease, you’ll keep the higher rate.

CD cons

  • Lower interest rates. CDs generally have lower interest rates than bonds, although this isn’t always the case.
  • Money is locked up until maturity. There are a few no-penalty CDs out there, but you’ll pay a fee if you need to access your funds before the maturity date.
  • Conditions vary by institution. Each financial institution sets its own interest rates and minimum deposit requirements, so conditions vary.
  • Growth doesn’t outpace inflation. If you lock in a 2.0% APY, it may not be high enough to outpace an average 3.0% inflation rate.

Pros and cons of bonds

When you purchase a bond, you’re loaning a company or the government money. Terms range from one year to 30 years.

Bond pros

  • Higher interest rates. Corporate bonds typically have higher interest rates than CDs and government bonds, but they’re also riskier.
  • Can sell before maturity. You can sell the bond before maturity without penalty. But you may lose money if the bond’s value has decreased.
  • Variety of bond types. You can choose from municipal bonds, corporate bonds, treasury securities and more.
  • Can diversify. If you’re looking to spread out risk, you can purchase low-cost bond mutual funds, which are made up of hundreds of individual bonds.

Bond cons

  • Risk of default. When you purchase a bond, you’re lending money to an entity and there’s no guarantee they’ll pay it back.
  • Bond values fluctuate. The value of a bond increases and decreases as interest rates change, so you may lose money if you sell your bond before maturity.
  • Hard to compare. There are many different types of bonds making it difficult to choose and compare them.
  • Broker fees. You may pay fees if you want to buy or sell bonds on the secondary market.

Compare top-rated CDs

Name Product 1-year APY 18-month APY 2-year APY 3-year APY 5-year APY
CIT Bank Term CDs
0.3%
0.3%
0.4%
0.4%
0.5%
Radius Bank CDs
0.5%
0.5%
0.5%
0.5%
0.5%
BBVA CD
0.1%
0.1%
0.1%
Discover CDs
0.5%
0.5%
0.5%
0.55%
0.6%
Discover IRA CDs
0.5%
0.5%
0.5%
0.55%
0.6%
Barclays Online CDs
0.3%
0.3%
0.3%
0.3%
0.3%
Ally High Yield CDs
0.65%
0.7%
0.75%
1%
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Compare up to 4 providers

How to compare CDs with bonds

Keep the following factors in mind when you compare CDs and bonds:

Bottom line

CDs are less risky than bonds, but they come with lower interest rates and a penalty for accessing funds before maturity. Bonds may carry more risk, but they offer more variety and you can sell them before maturity.

Both accounts have benefits and drawbacks. But the right one depends on your needs and goals. Consider each account type carefully before you choose.

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