Watch your money grow without any risk by investing in a Certificate of Deposit (CD). Rather than putting your money into a savings account, get a higher rate of return with a certificate of deposit, assuming you don’t need the money for a while. Take your money, invest it into a certificate of deposit, and collect your annual percentage for the length of the CD term.
If you have the money to invest in a CD, the next step is the selection of a bank, a term decision, and invest. Remember, if there is a chance you’ll need this money then do not invest in a CD.
What is a CD?
The abbreviation CD stands for certificate of deposit. It is an interest-bearing certificate offered by banks, credit unions, savings and loan organizations, and more to raise money for business activities.
With the purchase of a CD, you commit to keeping your money in the account and with the bank for a set period. Certificates of deposit with longer terms yield more interest than shorter terms.
For example, a certificate of deposit with a five-year term and a 2.4% annual percentage yield (which is a high rate) earns over $600 in this five-year period. Comparatively, keeping this money in a savings account with a 1.3% rate would make about $300 in interest.
There is a penalty incurred for removing your money from a CD. It is not structured live a savings account where you can take out your money without much regulation. The initial investment cannot be removed from a CD without a penalty.
Brokered CDs from Vanguard
There are a few types of the CD, but the option offered by Vanguard is a brokered CD. It is similar to a bank CD but is issued to your brokerage firm and then to you. You get a set interest rate, the bank has a debt obligation to you, and you get
The most prominent advantage of a brokered CD is getting access to certificates from multiple banks with one account. As a single investor, you get the stability of many banks and expanded protection from the FDIC. Not all CDs need to be held to maturity if in brokered accounts.
Benefits of Certificates of Deposit
Still considering a CD as a savings option? Before making this financial decision, weigh the pros and cons of the decision. The benefits of certificates of deposit include:
- Security. You want your investment to be insured by the federal government. Because the FDIC backs banks, your investment in a CD is FDIC-insured in cases.
- High Return. Get a higher return than what is available with standard savings accounts. It also produces a higher yield than most money market funds.
- Different CD Types. There are various types of CDs to meet your personal preferences. Brokered CDs are managed by you.
- Know what you will have by the end of the deposit period.
Diversify past your current savings account. You don’t have to be a high net worth individual to maintain an account with certificates of deposit.
A CD is a right choice for you as an investor if you are looking for a low-risk solution for putting your cash somewhere. For example, an account you plan to use in three years for your granddaughter’s graduation would do well in a three-year CD term.
Downsides to Certificates of Deposit
The highest rates of return come with the most long-term deposits. To maximize your money, you have to live without access to it for years at a time. For individual investors, this isn’t the best way to grow their money because available capital isn’t high.
Are Vanguard CDs a Good Investment?
Vanguard is an investment management company with a strong reputation within the personal finance world. This is because the Vanguard organization has low fees, superior management, and easy use. In fact, you can buy and sell fixed income investments like CDs and bonds on Vanguard’s website.
One of the reasons Vanguard keeps its reputation among investors is its commitment to low-cost investing while staying committed to investors. Vanguard fees are dropped in favor of a reduced service cost, and they don’t sell complex financial products.
When compared to the rates of other CDs, Vanguard offers a competitive price. You get a similar rate whether you choose a Fidelity or a Vanguard CD, so it comes down to the selection of the individual investment company. Vanguard has about $4 trillion under management, which means you are far from the only one that invests with them.
Vanguard CD Rates vs. Fidelity CD Rates
Vanguard’s current CD rates vary based on the term of the deposit. Here are some example interest rates for certificates of deposit as they are currently available:
- 3 Months: 1.25%
- 9 Months: 1.45%
- 2 Years: 1.80%
- 3 Years: 2.05%
- 5 Years: 2.4%
- 10 Year: 2.65%
Fidelity’s current CD rates also vary based on the term of deposit. To compare to Vanguard, Fidelity’s current interest rates are:
- 3 Months: 1.15%
- 9 Months: 1.40%
- 2 Years: 1.75%
- 3 Years: 2%
- 5 Years: 2.35%
In every rate, Vanguard beats Fidelity by .05%. This is enough to be a few dollars for every hundred you invest in a CD. In a decision based on rates alone, Vanguard wins. In a decision based on prices and reputation, Vanguard still has the advantage against Fidelity.
Make More Money with Vanguard CDs
Some specific investors do well with investments from Vanguard. Go through them for a brokered CD to reap the benefits of this steady investment and coverage by FDIC insurance. Their low fee structures and honest investors work on your behalf.
Get low risk and a bit of a reward with a certificate of deposit. Investing in CDs with good rates helps balance your long-term investment plan.