CDs vs. Bonds, Money Market Accounts, IRA CDs

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When it comes to investing, many people first think of the stock market. While there is potential to gain, not everyone is comfortable with market volatility and risk. Fortunately, there are several low to no-risk investment options available that can help you save, earn a strong return and keep your money safe.

Certificates of Deposit (CD), also known as time deposits, accounts are a popular choice, but there are other options available, such as bonds, money market accounts and Individual Retirement Account (IRA) CDs. Choosing which option is best will depend on your long-term goals, but there is more to it than simply looking at the interest rate. Each account type has its benefits and limitations. And of course, you should always consult with your financial, legal or tax advisor.

Here are the main things you’ll want to consider as you weigh your options.

Certificates of Deposit: Know the Basics

CDs are similar to a savings account, but you agree to lock in your deposit for a set term, usually between 6 months and 5 years. In return, institutions typically pay out a higher rate of interest, measured as an Annual Percentage Yield (APY), than they do on traditional liquid savings accounts.

People like CDs because they offer guaranteed interest. You can’t lose money on your deposit, unless you withdraw early, and FDIC-insured institutions protect investments up to $250,000 per depositor. If you leave your money in a CD for its entire term, you will get back your principal, plus interest.

While many banks offer CDs, they’re not all created equally. Pay particular attention to the APY offered, and any potential fees associated with the account, most commonly: early-withdrawal penalties. If you’re concerned about needing access to your funds, some banks—like PurePoint—are beginning to offer No-Penalty CDs, which allow you the freedom to remove your full balance if you need to, one time, without any penalties.

IRA CDs vs. Certificates of Deposit (CD)

An IRA is a type of tax-advantaged account that helps people save for retirement. Depending on the type of IRA you choose, you’ll be able to grow your money tax-free, or on a tax-deferred basis. You may also have heard of an IRA CD, which is a CD that’s held inside of an IRA account.

IRA CDs can be insured by the FDIC, as long as the institution is a Member FDIC. IRAs may require a minimum investment, and can come with a variety of terms and rates. With IRA CDs, the interest earned on the CD can grow on a tax-deferred or even tax-free basis. Tax-deferred means you won’t pay income tax on the interest until you withdraw your money in retirement, and tax-free means you never pay taxes on the interest. When an IRA CD matures, it automatically rolls over for a new term, unless you select a different investment.

Keep in mind, if you withdraw from an IRA before retirement, you may be liable for taxes and early withdrawal penalties— penalties can be 10% of the total amount you withdraw, or more.

And of course, you should always consult with your financial, legal or tax advisor.

Money Market Account vs. Certificates of Deposit

Money market accounts function more like savings accounts than CDs. There are no fixed interest rates or terms, rates can fluctuate over time, and you can withdraw money and usually write checks—though there may be a monthly limit on the number of transactions you can make.

You may get a better interest rate with one of these accounts than on a savings account as a result of how the bank invests your deposit. However, rates still tend to be higher on CDs since you’re locking in your investment for a set amount of time.

Both CDs and money market accounts can be protected by the FDIC.

Bonds vs. Certificates of Deposit (CD)

In both cases, you’re loaning money out for a set period of time in exchange for an agreed-upon interest rate, but with a bond, your money is lent to a government or business so it can help fund operations and investments. Bonds can have terms ranging from 6 months to 30 years.

Bonds are not protected by the FDIC, nor are they 100% safe. While it’s unlikely a bond issued by the U.S. government will default, you may be out of luck if you purchase one from a startup company that ultimately folds.

Interest payments also vary depending on how likely the government or business is to default on its loan. For instance, a 5-year Treasury bond, which is extremely safe, could pay between 1.50% and 2.00%, while a 5-year CD from PurePoint could pay more . Corporate issuers can pay well above that number depending on the potential for a default.

Bonds are often sold in bulk, which makes it hard to buy one or two, and there may be brokerage or trading fees associated with purchasing the investment.

Summary: Which investment option is best for you?

There’s no right or wrong investment —all of them have a place in a diversified portfolio and what to buy depends on your personal situation. Below is a simplified snapshot of the key differences between CDs, bonds, money market accounts and IRA CDs:

FDIC insurance available
Typical Term lengths
Fees for early withdrawal
Certificate of deposit
3 mos. – 5 yrs.
(none for No-Penalty CD)
Yes 3 mos. – 5 yrs.
Money market account
Yes No term
1 yr. – 30 yrs.
Savings account
Yes No term No

Those who want to keep their money safe and generate a return on their savings may want to first consider a CD. They’re flexible, they’re safe, they come with higher rates than some other investments and they have a variety of term options. PurePoint currently offers many CD term lengths, with highly competitive annual percentage yields (APYs).

In any case, it’s always wise to keep growing your savings, and ensure that at least some of your hard-earned money is being invested without risk.


  1. FDIC

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