Skip to main content
Advertiser Disclosure
We do receive compensation from some partners whose offers appear on this page. We have not reviewed all available products or offers. Compensation may impact the order in which offers appear on page, but our editorial opinions and ratings are not influenced by compensation.

The Ascent Logo The Ascent Logo - Blue circle with an A in it and the ascent a motley fool company to the right of that

  • Credit Cards
  • Banking
  • Brokerages
  • Loans
  • Mortgages
  • Knowledge
  • Latest Picks
  • Search Icon Click here to search

Credit Cards

Top Picks
  • Best of January 2021
  • Cash Back
  • Balance Transfer
  • Travel
  • 0% APR
  • Rewards
  • Bad Credit
Knowledge
  • Beginners Guide to Credit Cards
  • How to Rebuild Your Credit
  • Maximize Your Credit Card Rewards
  • Learn More About Credit Cards
Credit Card Tools
  • Compare Cards
Looking for a new credit card?

Explore the best credit cards in every category as of January 2021.

Get started!

Banking

Top Picks
  • Best Savings Accounts
  • Best Bank Accounts
  • Best Money Market Accounts
  • Best CDs
  • Best Checking Account Bonuses
Knowledge
  • Beginners Guide to Banking
  • Everything You Need to Know About Savings
  • Money Market Accounts Made Easy
  • Learn More About Banking
Looking for a place to park your cash?

Check out our top picks of the best online savings accounts for January 2021.

Get Started!

Brokerages

Top Picks
  • Best Brokers of January 2021
  • Best Online Brokers for Beginners
  • Best Options Brokers
  • Best IRA Accounts
  • Best Roth IRA Accounts
  • Best Robo Advisors
Knowledge
  • How to Open a Brokerage Account
  • Beginner's Guide to Brokerages
  • Learn More About Brokerage
Just getting started?

Explore our picks of the best brokerage accounts for beginners for January 2021.

Get Started!

Loans

Top Picks
  • Best Loans of January 2021
  • Best Personal Loans for Bad Credit
  • Best Loans for Debt Consolidation
  • Best Low-Interest Personal Loans
  • Best Personal Loans for Good Credit
  • Best Personal Loans for Fair Credit
Knowledge
  • Personal Loans Made Easy
  • Debt Consolidation Guide
  • How to Pay Off Debt
  • Learn More About Loans
Thinking about taking out a loan?

Before you apply for a personal loan, here's what you need to know.

Get Started!

Mortgages

Top Picks
  • Best Mortgage Lenders of January 2021
  • Best Mortgage Lenders for Poor Credit
  • Best Refinance Lenders
  • Best VA Mortgage Lenders
Knowledge
  • First Time Homebuyers Guide
  • Home Loans Made Easy
  • The Complete Guide to Refinancing
  • How to Get a Mortgage with Bad Credit
  • Learn More About Mortgages
Tools & Calculators
  • Mortgage Calculator
Compare Rates
  • Today's Mortgage Rates
  • Refinance Rates
  • 15-Year Mortgage Rates
  • 20-Year Mortgage Rates
  • 30-Year Mortgage Rates
  • Jumbo Mortgage Rates
  • VA Loan Rates
  • 5/1 ARM Rates
  • 7/1 ARM Rates
  • FHA Mortgage Rates

Knowledge

Knowledge Section
  • All Articles
  • Credit Card Articles
  • Banking Articles
  • Brokerage Articles
  • Personal Loan Articles
  • Mortgage Articles
  • Personal Finance Articles
Recent Articles
  • U.S. Citizens With Undocumented Spouses Can Get Stimulus Checks

    Personal Finance

    U.S. Citizens With Undocumented Spouses Can Get Stimulus Checks
  • Don't Accidentally Throw Away Your Stimulus Check

    Personal Finance

    Don't Accidentally Throw Away Your Stimulus Check
  • Stimulus Check Update: $1,400 Checks Now on the Table

    Personal Finance

    Stimulus Check Update: $1,400 Checks Now on the Table
  • Weekly Mortgage News Roundup for Jan. 15, 2021

    Mortgages

    Weekly Mortgage News Roundup for Jan. 15, 2021
  • The Ascent
  • Knowledge
  • Banking

Are CDs Safer Than Bonds?

by Maurie Backman | Jan. 1, 2020

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

If you're the risk-averse type, it helps to know where the safest place for your money is. 

No matter how much you earn, you should have an emergency fund with enough money to cover three to six months of living expenses. That emergency cash should be left in a traditional savings account, where your principal deposit is protected.

But what if you're looking for a relatively safe investment for the cash you've amassed beyond your emergency fund? If you stick it in a regular savings account, you won't earn much interest on it. Another option is to put it into a certificate of deposit (CD) or invest it in bonds where you'll likely earn a lot more interest without exposing yourself to too much risk. The question is: Which is a better -- and safer -- choice?

A father and his young daughter put money in a piggy bank.

Image source: Getty Images

What is a certificate of deposit?

With a CD, you agree to lock up a certain amount of money for a predetermined period of time. In turn, you're guaranteed a certain interest rate on that money, unlike a savings account where interest rates can fluctuate, for better or worse, throughout the year. 

For example, you might put $5,000 into a two-year CD with a 2% interest rate. You agree to keep that money in the bank for two years, and you're guaranteed that 2% interest rate, even if rates drop drastically. 

If you cash out your CD before its term ends, you'll risk a penalty that varies, but is usually the equivalent of several months' interest. But your principal deposit in that account is protected provided it doesn't exceed the FDIC limit of $250,000 per depositor (and really, you wouldn't want to put anywhere close to that level of cash into a CD anyway).

What are bonds?

Bonds are debt instruments that are issued to raise funds. Corporate bonds are issued by companies to secure capital for things like expansion and product development. Municipal bonds are issued by cities and townships for projects like park cleanups or road improvements. 

When you buy bonds, you agree to lend the issuer a certain amount of money for a predetermined period of time. In exchange, the issuer agrees to pay you interest twice a year at a preset rate. 

For example, if you buy $5,000 of a company's 10-year bonds with a 4% interest rate, you agree to give that company your money for 10 years, and it agrees to pay you $200 in interest annually ($100 twice a year) until your bonds mature, at which point you get your initial $5,000 back. 

How do CDs and bonds differ?

CDs and bonds differ in a few ways:

  • CD deposits are FDIC-insured. This means your principal is protected. Bonds are not FDIC-insured. If a bond issuer goes bankrupt, your bonds' value could drop. If you buy $5,000 worth of bonds but their value declines, you could wind up only getting repaid $3,000 when your bonds come due. And, there's the possibility that your issuer will stop making interest payments if it encounters financial difficulties, whereas you're guaranteed interest on your CD.
  • You won't be penalized for selling your bonds before their term is due. But you do get penalized for cashing out a CD early. If you buy $5,000 in bonds but need that money several months later, and you're able to get the same price for your bonds, you won't lose money by not waiting out your bonds' term. (Keep in mind, though, that you may not be able to get that same price.)
  • Your bonds can increase in value. You may be able to sell your bonds for a higher price than you initially paid. With a CD, you'll earn interest, but you can't turn a principal deposit of $5,000 into a higher principal. 

CDs vs. bonds: What's the safer investment?

In the grand scheme of investments, both CDs and bonds are relatively safe. 

That said, CDs:

  • Offer the protection of FDIC insurance while bonds don't.
  • Are a more liquid investment.

You can cash out a CD at any time and still get your principal back, minus whatever interest penalty applies. To sell bonds before they come due, you need a buyer. If you don't find one, you're out of luck. And while bonds issued by a reasonably reputable company or municipality may not be so hard to sell, if that issuer falls upon hard financial times and gets downgraded to junk territory (a designation meant to indicate that the bonds in question are generally not suitable for investors), you may not be able to move those bonds out of your portfolio. 

But bonds, to some degree, do give you more control over your money, as you can sell them you want or need to cash out your investment without being penalized -- assuming there's a market for them.

It is worth remembering that both CDs and bonds expose you to what's known as interest rate risk. Any time you lock your money away for a preset period of time at a fixed interest rate, you run the risk that you'll lose out on the opportunity to earn more interest a few months down the line. 

For example, you could lock in a two-year CD at 2% interest. But what if your bank then offers that same two-year CD at 2.25% interest two months later? At that point, you're stuck with that 2%. Similarly, you might buy $5,000 of 10-year bonds at 4% interest, and six months later, that issuer offers the same bonds with the same 10-year term for 4.5% interest. Once again, you're stuck.

Ultimately, you can still rest assured that both CDs and bonds are fairly safe investments. If you're the risk-averse type, either could be a suitable choice for you.

These savings accounts are FDIC insured and can earn you 12x your bank

Many people are missing out on guaranteed returns as their money languishes in a big bank savings account earning next to no interest. Our picks of the best online savings accounts can earn you more than 12x the national average savings account rate. Click here to uncover the best-in-class picks that landed a spot on our shortlist of the best savings accounts for 2021.

Two top online savings account picks

Rates as of Dec. 29, 2020 Ratings Methodology
Logo for CIT Bank Savings Builder
Logo for American Express® High Yield Savings Account
CIT Bank Savings Builder American Express® High Yield Savings Account
Member, FDIC Member, FDIC
Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. = Best
= Excellent
= Good
= Fair
= Poor
Rating image, 5.0 out of 5 stars.
5.0 stars
ToolTip Icon for Star Rating. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. = Best
= Excellent
= Good
= Fair
= Poor
Open Account

On CIT's Secure Website.

Open Account

On American Express' Secure Website.

Read Review Read Review

APY: Up to 0.45%

APY: 0.50%

Best For: No monthly maintenance fee

Best For: High APY

Min. to earn APY: $25k or $100 monthly deposit for highest tier

Min. to earn APY: $0

About the Author

Maurie Backman
Maurie Backman icon-button-linkedin-2x

Maurie Backman is a personal finance writer who covers everything from savings to retirement to healthcare. Her articles have appeared broadly on major outlets such as CNBC, MSN, and Yahoo.

Share This Page
Blue Facebook Icon Share this website with Facebook
Blue Twitter Icon Share this website with Twitter
Blue LinkedIn Icon Share this website with LinkedIn
Blue Mail Icon Share this website by email

The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.

Featured Offer

Amex_Savings_BlueBox_Double_Line_226x142.png

High APY and low fees

Open Account

Related Articles

Piggy bank surround by cash stacks image for Best Online Savings Accounts for 2021

Best Online Savings Accounts for 2021

Interest spelled out on a calculator image for Best CD Rates

Best CD Rates

Man holding credit card and looking at computer screen laughing with woman image for What is APY and What Does it Mean for Your Savings Account?

What is APY and What Does it Mean for Your Savings Account?

Couple looking at a paper bill together at a table worried image for Is it Time to Switch Banks?

Is it Time to Switch Banks?

Featured Articles

Best Online Savings Accounts for 2021

Best CD Rates

What is APY and What Does it Mean for Your Savings Account?

Is it Time to Switch Banks?


We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.

The Ascent Logo

The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.

btn_facebook-yellow btn_twitter-yellow btn_instagram-yellow

Copyright © 2018 - 2021 The Ascent. All rights reserved.

About The Ascent
About Us Contact Us Newsroom How We Make Money Editorial Integrity Ratings Methodology
Legal
Terms of Use Privacy Policy Accessibility Policy Terms and Conditions Copyright, Trademark and Patent Information
Learn
Credit Cards Banking Brokerage Loans Recent Articles

By submitting your email address, you consent to us sending you money tips along with products and services that we think might interest you. You can unsubscribe at any time. Please read our Privacy Statement and Terms & Conditions.

Back to The Motley Fool