What is a Certificate of Deposit & Is it Still a Viable Investment Strategy?

Managing money often comes down to balancing growth with security. Investors weigh the potential of higher returns against the risks that come with them. On the other hand, savers look for ways to make their money work harder without taking on too much uncertainty.

According to Gallup, around 62% of Americans owned stock in 2025. The readings are similar to those in 2024 and 2023. While these investments can offer higher returns, they also carry the risk of losing money due to market volatility.

One option that has long stood between these two worlds is the certificate of deposit, or CD. Viewed as a conservative investment, CDs promise a guaranteed return for those willing to lock away funds for a fixed period.

Although the rewards are not substantial, they offer a guaranteed return. This article explores certificates of deposit (CDs) to determine if they are still a good investment option.

What Is a Certificate of Deposit and How Does It Work

You might have come across the term certificate of deposit when evaluating your investment options. But what is a certificate of deposit? A financial product offered by banks and credit unions, it has existed for decades. It is considered one of the more traditional ways to save and grow money, especially for individuals who want predictability and safety.

When you put money in a CD, you are lending it to the bank for a set time, from a few months to several years.

The bank guarantees an interest rate that’s typically higher than a regular savings account. When the CD matures, you get your initial deposit plus the interest.

The fixed nature of CDs is one of their main appeals. Your interest rate stays the same no matter what the economy does. This can feel reassuring during times of uncertainty, as it eliminates the worry of fluctuating returns. The lack of flexibility can be a drawback if you need to access your money unexpectedly.

Why People Choose CDs

For many, the appeal of a CD lies in its stability. Stocks and mutual funds are subject to market swings, which means there is a risk of losing money as well. Consider the plunge in April 2025 due to Trump’s tariff news.

As stated by CNBC, major IT stocks, including Apple, Nvidia, Tesla, and Meta Platforms, declined substantially. The decline followed the historic third-largest gain, during which the S&P soared by more than 9%. In such volatile markets, there is a high chance of gaining or losing money.

Unlike stocks or mutual funds, CDs are not subject to market swings and are insured by the FDIC in the United States. This makes them one of the safer places to keep money that you cannot risk losing.

Some people use CDs as a way to lock in interest rates they believe may drop in the future. Others see them as a disciplined savings tool, since the penalties for early withdrawal discourage unnecessary spending. The fact that they carry very little risk compared to other investment vehicles is often enough to justify their use, especially for conservative savers.

The Drawbacks to Consider

Despite their safety, CDs are not without limitations. A major drawback is that their returns often can’t keep up with inflation. If inflation rises faster than the interest on your CD, your money’s buying power decreases over time. In other words, you might earn interest but still lose value in real terms.

Another challenge is accessibility because you have to lock in your money for a specific time. As a Forbes article notes, CDs are typically designed to be left alone. You will have to pay a penalty if you withdraw your money before the maturity date.

The lock-in term can also impact your potential return. It is a trade-off between not accessing your money for a long time and return rates. If you lock in for a bigger term, you may get a good return. However, the flip side is also true. If the lock-in period is short, like two or three years, the interest on your money might not be good enough to beat inflation.

Money locked in a CD cannot be redirected to other investments that might generate higher returns. While this trade-off may be acceptable for risk-averse individuals, it can be frustrating for those who want to take advantage of changing market conditions.

Are CDs Still a Viable Strategy Today?

Whether a CD makes sense as an investment strategy today depends largely on individual goals and the current economic environment. Interest rates have changed significantly in recent years.

During periods of low rates, CDs offer little advantage over savings accounts. However, when interest rates rise, CDs can suddenly look attractive again because they allow savers to lock in higher yields.

The economic environment is a key factor in encouraging people to get CDs. According to Yahoo! Finance, CD balances were up in 2023 due to the volatile financial landscape. Rising interest rates and multiple bank failures surged the popularity of CDs. CD balances increased by more than 1,000% in just nine months.

If you are simply looking to park your money, other options are available. According to MyStages, annuities can offer comparable or even higher rates than CDs. The benefit of annuities is that they offer similar risk but with better flexibility. You can access your money through partial or full liquidity at varying costs.

Frequently Asked Questions

Can you lose money with a certificate of deposit?

As long as you keep your funds in an FDIC- or NCUA-insured institution and stay within coverage limits, your principal is protected. You can only “lose” money if you withdraw early and pay a penalty, or because of inflation.

What happens if interest rates go up after you open a CD?

If rates rise, you are locked into your original rate until maturity. This means you miss out on higher potential earnings. Some banks offer “bump-up CDs” that let you increase your rate once, but these are not common.

Are CDs a good place for emergency savings?

CDs are not ideal for emergency funds since the money is locked in for a set term. A high-yield savings account or money market account is a better option for money you might need quickly. CDs work better for money you know you won’t touch until a specific date.

A certificate of deposit is a very straightforward financial product. It offers safety, predictability, and a disciplined way to save. However, its limitations, particularly when it comes to inflation and liquidity, mean it may not fit every investor’s needs.

The question of whether CDs are still viable depends on what you value most. If your priority is to preserve money without worry, a CD can still play a meaningful role. If your aim is to grow wealth significantly over time, CDs may be too conservative. Ultimately, their relevance today is not about whether they are good or bad, but whether they align with your personal financial strategy.