Many people tend to confuse bonds and certificate of deposit. A certificate of deposit commonly abbreviated as CD is an interest-earning certificate offered by the bank to acknowledge a fixed deposit and raise money. Basically, is like giving someone money and the person promise to give you the money back plus interest accrued.
The loans to you offer the government is what is known as bonds. This can include money given to a corporation and government agencies. Just like CDs, bonds have a specified date of collection or maturity period and comes with a fixed interest rate.
Certificates of deposit are categorized as one of the best saving options especially for those who don’t want to risk. These certificates are insured thus minimized loss in case anything happens.
Well, any Investment Products must have some risk factor attached to it. It is important to keenly go through the disclosure statement. The statement should clearly outline whether the interest rate is variable or fixed, and the interval at which the interest payment will be settled and the means of settlement.
Obviously, it is important to counter check the maturity date. Other than that, look at the terms and conditions, check whether there is a penalty for early withdrawal. The major risk with CDs is the inflation. Sometimes inflation grows at a rate faster than your invested money thus lowering your revenue.
As mentioned earlier, bonds are simply a representation of a debt obligation. The government issues bonds to individuals to get loans which are repaid with interest. It is important to note that the holders of a bond are simply lenders and not owners. As much as bonds are investment products, you do not acquire rights of ownership when you buy them. Think of it as an IOU from the government.