Navigating the investment landscape can be overwhelming, even when it comes to fixed-income securities like bonds and CDs. While both aim to offer conservative growth, they differ in risk and returns. Many investors use them to balance risk in a diversified investment strategy, such as a three-fund portfolio.
Learn the essential differences so you can choose the option that best suits your financial strategy.
| Bonds | CDs | |
|---|---|---|
| Issuer | Issued by governments, municipalities or corporations. | Issued by banks and credit unions. |
| Risk level | Riskier, with the potential for issuer default, especially for corporate and high-yield bonds. | Low-risk, typically insured by FDIC or NCUA up to $250,000 per depositor. |
| Interest rate | Can have fixed or variable rates, usually higher than CDs, due to increased risk. | Can have fixed or variable rates, but fixed-rate CDs are most common. |
| Maturity | Maturity periods can range from months to 30 years or more. | Terms typically range from months to five years, though some extend up to 10 years. |
| Market trading | Can be traded on secondary markets before maturity, leading to price fluctuations. | Cannot be traded; must be held until maturity or withdrawn early with penalties. |
| Principal | Principal is at risk if sold before maturity at a lower price or if the issuer defaults. | Principal is safe, and full amount is returned at maturity, assuming no early withdrawal. |
| Insurance | Not insured by the FDIC or other agencies. | Typically insured by the FDIC (banks) or NCUA (credit unions) up to $250,000 per depositor. |
| Interest payments | Typically pay periodic interest. | Interest may be paid at maturity or periodically, depending on the terms. |
A bond is a debt security through which you lend money to an issuer, such as a government, corporation or other entity.(1) In return, the issuer promises to pay you interest at regular intervals, known as coupon payments, and to return the full amount of your loan when the bond reaches its maturity date. The full amount of your loan is known as the bond’s face value.
Governments and organizations commonly use bonds — as well as shorter-term instruments like Treasury bills — to raise funds for projects or operations and are generally considered more stable than stocks. Because they provide regular interest payments, bonds are classified as fixed-income securities.
Public Bonds
Buy corporate and Treasury bonds for as little as and in any increment.
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A certificate of deposit (CD) is a type of savings account that holds a fixed amount of money for a set period, known as the term, which can range anywhere from three months to 10 years.(4)
In exchange for leaving your money untouched during the term, the bank or credit union usually pays a fixed interest rate, which is typically higher than that of a regular savings account. At the maturity date — when the term ends — you can withdraw your money and the interest earned. You can compare competitive yields across multiple terms in our guide to the best CD rates.
While fixed-rate CDs are most common, some CDs offer variable rates that fluctuate over time.
CDs are considered a low-risk, stable way to grow your savings, though you typically can’t access your money early without paying a penalty.
Patriot Bank 3-month CDs through Raisin
Patriot offers a strong 3.60% APY on its 3-month CD through Raisin. Pay no fees and just a minimum deposit.
Choosing between bonds and CDs depends on your financial priorities and how you prefer to manage your money.
Bonds may offer regular income and the potential for higher returns, but they come with more risk and price fluctuations. Fixed-rate CDs, however, provide guaranteed returns with a fixed interest rate, minimal risk and no price fluctuations, though your money is typically locked away for a set period.
If you are looking to build a long-term retirement strategy that balances equities and fixed income, consider exploring target-date funds. Or, if you’re ready to start purchasing bonds and individual stocks, compare the best brokerage accounts to find the right platform for your financial goals.
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