Pros
- You know exactly what you’ll earn, and your principal is protected.
- You may get a tax deduction for contributions, and your money grows without being taxed each year.
- CDs usually pay more than regular savings accounts, so your retirement money grows faster.
- Your money is insured up to $250,000, so you won’t lose it even if the bank fails.
- Once you open the CD, you don’t have to watch the markets or make investment decisions.
Cons
- Over long periods, CDs often can’t keep up with inflation, which means your money loses purchasing power.
- If you need cash before age 59½, you’ll face penalties.
- The stock market has historically averaged much higher than what CDs can earn.
- If you lock in a rate and rates go up, you’re stuck with the lower rate.