Ranked: The Top 5 Reasons to Invest in CDs

Certificates of deposit (CDs) have recently attracted investors' attention due to their high annual percentage yields (APY). But you might be wondering if a CD is right for you and why you should consider committing your money to one.

Here are five reasons why CDs are so popular among investors and how you can benefit from them.

1. The interest rates are great right now

One of the best reasons to choose a CD right now is that their rates haven't been this high in many years. It's easy to find CD rates of 5% or higher right now through some online banks.

Putting $5,000 into a 12-month CD that earns 5% would earn you $250 at the end of the CD's term. That's easy money for doing nothing more than opening and funding an account.

2. The rates are (mostly) guaranteed

In addition to CD rates being high right now, they're also the closest you'll get to a guaranteed return on your investment. Even high-yield savings accounts don't guarantee their APYs.

Just know that if you take your money out early, you'll have to pay a penalty fee. CD early withdrawal fees are typically three months of simple interest for CD terms of two years or less and six months of simple interest for CD terms longer than two years.

As long as you leave your money in the CD for the entire length, you'll receive the advertised APY for your CD.

3. You don't need a lot of money to open one

If you have a lot or just a little money to invest, there's a CD for you. Many high-yield CDs have $0 or $1 minimum deposits.

Of course, the more money you deposit, the more interest you can earn. But if you want a decent return on your money and don't have a lot of cash, you'll have plenty of CDs to choose from.

4. Your money is safe

Many people invest their money into a CD because they're relatively risk-free. All of the money in a CD is FDIC-insured, so if a bank fails with your money in it, you'll get it back, up to $250,000.

While bank failures aren't common, a few have occurred in the recent past. When you put your money into a CD, you can be confident you'll get it all back if something goes wrong with the bank or credit union (credit union accounts are insured by NCUA, rather than the FDIC).

5. You don't need to know about investing

Many people find opening a brokerage account to buy stocks intimidating. CDs don't have the same earning potential as stocks, but they're certainly easier to invest in.

And if you already have an individual retirement account (IRA), you may be able to add a CD to it. Putting a CD into your IRA means you won't be able to collect your earnings until you retire, but it could help you offset some tax liabilities.

While CDs aren't right for everyone, they can be a safe and steady place to invest your money. If your goal is cash preservation, then a high-yield CD is a great choice. Just keep in mind that CD rates will likely start falling soon, so lock in your interest rate now if you're interested.