Certificates of deposit (CDs) and bonds are similar but not identical. They are both fixed-income securities that the investor holds onto until their 澳洲幸运5开奖号码历史查询:maturity dates. The investor puts money into a 澳洲幸运5开奖号码历史查询:certificate of deposit or a bond for a set period, and they get their money back when the time is up. The investor is also paid interest.

Both CDs and bonds are debt-based securities, and the investor is the creditor. It’s no different than having a fr💧iend ask for a $10 loan today and give you an IOU promis❀ing to pay $11 next week. The $1 interest is collected for the same reason that banks charge interest on loans: to compensate you for delaying your ability to make use of the money. You can’t spend that $10 when you don’t have it.

Bonds vs. Certificates of Deposit (CDs)

Bonds and CDs fit under the 澳洲幸运5开奖号码历史查询:same broad category of investment vehicles. While both are fixed-income investments, they aren't the sꦬame. Here’s how they differ.

Bond Risks and Rewards

Bonds are issued by companies or governments when they want to raise funds. Money 🐎raised from the sale of bonds is typically used for daily operations or to fund a special project.

All bonds are awarded a rating by a bond rating agency based on the likelihood that the company or government that issues them will default on their debts. There is a very low 澳洲幸运5开奖号码历史查询:default risk for 澳洲幸运5开奖号码历史查询:investment-grade bonds and a greater risk for so-called 澳洲幸运5开奖号码历史查询:junk bonds.

The lower the risk, the lower the 澳洲幸运5开奖号码历史查询:interest rate that the issuer will have to offer to find takers for their bon𒐪ds. Conversely, the higher the risk, the greater th𓆉e financial reward.

A CD Is Like a Savings Account

The issuer of a CD is usually a bank or a 澳洲幸运5开奖号码历史查询:credit union. It is more like a savings account than a loan. Like a savings account, money in a CD is guaranteed by the 澳洲幸运5开奖号码历史查询:💖Federal De🥀posit Insurance Corporation (FDIC) for deposits up to $250,000. Due to this added layer of safety,ꦫ CDs typically pay lower rates than bonds.

The 澳洲幸运5开奖号码历史查询:rate of return is a little better than a traditional savings account because the investor promises to keep that money locked in for a certain period, which can range from a month to even years. The invest𓆉or can get the money out early only with a penalty.

The rate of return is lower than those offered by bonds. The reason is the absence of risk. As of November 2024, the average interest rate was 1.84% for a one-year CD and 1.35% for a five-year CD.

Time to Maturity

While available term lengths for bonds and CDs overlap, bonds tend to be longer-term investments, with many maturing after 20 years or more. Some bonds mature in 10 years, or even just a few years. CDs mature in as little as one month, although they may g🔯o to five or even 10 years.

U.S. Treasury marketable securities are a type of fixed-income investment. While all of them are often referred to as bonds and work like bonds, only the longest ones are classified as𒀰 bonds. The classification of Treasury securitie🐟s is as follows:

• 澳洲幸运5开奖号码历史查询:Treasury bills (T-bills) have maturities between four weeks and one year
• Treasury notes have maturities between two and 10 years
• Treasury bonds have maturities of 20 or 30 years

Corporate 🎉bonds can have maturities that are longer like U.S. Treasury bonds or as short as a year. They typically have three classifications:

• Short-Term: Maturities up to three years
• Medium-Term: Maturities of four to 10 years
• Long-Term: Maturities greater than 10 years

The Bottom Line

The difference in time commitment as well as risks for bonds and CDs is best expressed in terms of the investor’s motives. CDs are 🥂short-term, low-risk, interest-paying storage for money until a more profitable investment or a better use for the money can be found. Bonds are longer-term vehicles to produce some returns, and for many investors, a safer haven to offset the risks of losses in other investments ꦜsuch as stocks.