Whether you’re saving for the down payment on your first home, planning the vacation of your dreams, or simply bolstering your savings for a rainy day, picking out a few smart investments can pack a bigger punch than your savings account – and get you that much closer to your long-term savings goals.
You have a few options to choose from when it comes to saving, like bonds vs CDS. How do you know which one’s right for your investment portfolio?
Let’s explore the basics of these two investment vehicles and how to choose the right one for you.
What’s a Bond?
A bond is essentially a loan you make to an organization, like the federal government, local municipalities, or a corporation in exchange for earning interest. In most cases, you hold the bond for a set period until it matures, at which point the organization pays back the face value plus an agreed-upon interest rate. Demand bonds, like the ones we offer at Worthy, don’t have a maturity date – they can be bought and sold at any time.
Bonds have a lot of benefits, making them an attractive choice for new and experienced investors alike. Some of the benefits include:
- Low minimum investments: Most bonds don’t require a big upfront investment. In fact, you can get started with Worthy bonds for as little as $10.
- High returns: Bonds often have higher interest rates and returns than simply leaving money in an interest-bearing savings account or money market.
- Liquidity: Most bonds allow you to cash out at any time. If a financial emergency leaves you strapped for cash, you can access your money in a pinch.
- Community impact: Depending on the type of bond you invest in, you may be able to make a big splash in local communities. Municipal bonds and Worthy bonds allow you to invest in local communities, especially in comparison to bonds for publicly traded companies or U.S. Treasury bonds where you loan money directly to Uncle Sam.
Of course, there are a few downsides to bond investments. Namely, most bonds aren’t guaranteed. Corporate bonds, for example, are often high-yield bonds but come with an inherent risk: you might not get your investment back if the company folds.
What’s a CD?
Certificates of Deposit (better known as CDs) are a savings tool you can access at just about every local bank or credit union.
Unlike bonds where you’re loaning that money out to businesses or government entities, CDs are a loan that permits the bank to use your money for a set period, usually six months to ten years. The longer they hold the money, the higher the interest rate you receive.
The main benefit of investing your money in CDs is that your funds are protected when you use an FDIC-insured bank (up to $250,000). They’re also very accessible to everyday individuals, unlike some bonds that need to be purchased through a broker.
CDs are not very liquid, but sometimes you can access your money before they mature. However, the bank will likely charge you fees or take a chunk of your earned interest as a penalty.
One major downside to investing in CDs over bonds is that their variable rates might not always compete with inflation. Rates are closely tied to the Federal interest rate, so some years will be better than others.
Think of it this way: You invest in a CD right now but inflation rises over the next five years. If you’re locked into a low interest rate, the money you invested might actually be worth less than at the outset of your investment. In this case, it might be better to look for the best bond rates and see how well they compete.
If there are high interest rates right now, it could be a great time to invest in a CD. Just keep in mind that you’re locked into that arrangement for a set period, even if interest rates rise higher.
Bonds vs CDs: Which is Better for You?
With the groundwork laid regarding bonds vs. CDs, how do you decide which one is right for you?
Bonds and CDs are both good set-it-and-forget-it investment strategies. Both options are fairly safe compared to riskier investments like stocks. Truthfully, both have their place in a diverse investment portfolio – and you may even find that they can work hand in hand!
Deciding on bonds vs. CDs depends on your unique circumstances and the market conditions.
If you don’t mind a little risk to net a bigger reward, take a closer look at bonds. While some bonds aren’t as secure as a CD, they come with a much higher interest rate. You can also mitigate the risk by choosing your bonds with care. Instead of investing in a publicly traded corporate bond that’s at the whims of the stock market, privately owned corporate bonds (like Worthy bonds) function independently from the market. Worthy also invests bond proceeds in real estate, which has a solid track record for steady, long-term growth.
Depending on your financial situation, you might also figure liquidity into your decision. While it’s best to hold bonds for as long as possible to get the most benefit from your investment, demand bonds can also be cashed in at any time (with no fees or penalties if you’ve purchased a Worthy Bond). Withdrawing from a CD early is still possible, but you’ll lose a chunk of your money to penalties.
The current market might also affect your decision. CDs rates are highly dependent on federal interest rates, so sometimes you can lock in a high rate that lasts for several months or years. But since the rates fluctuate, you won’t have a clear idea of when it’s a good time to buy. Rates could stay low for years, delaying your plans to invest and build your savings.
Private bonds through Worthy can maintain high-interest rates independent of the market, so you get more value from any investment.
Build Your Nest Egg with Worthy Bonds
You’ve worked hard for your money – and making strategic investment decisions can make it work hard for you, too!
Instead of loaning money to fund a large corporation’s growth, Worthy bonds build community wealth and work in a variety of business investments including CDs, real estate, Treasury bonds, and more. In other words, every bond you invest in is inherently diversified to minimize risk.
Whether you’re investing $10 or $10,000, take advantage of our 7.0% APY fixed rate interest for massive growth on your initial investment. Get started today in just a few minutes!
