- Download PDF
1 Answer | Add Yours
The relative merits of these two options have to do with the amount of risk you are willing to take and the amount of reward you are hoping for.
A CD is a very low-risk investment. CDs are bought through banks and typically have a guaranteed interest rate attached to them. They are also insured by the FDIC. These facts mean that you will get a guaranteed return and you cannot lose your money.
The downside to the CD is that you cannot get a large return the way you can on stocks. With a CD, you are going to get a certain interest rate, but there is no chance of a larger gain. With stocks, it is possible that the stocks you buy will increase a great deal in value and you will make much more than you would if you bought a CD. However, you have to balance that against the risk that your stocks would go down and you would lose some or all of the money you invested.
So, CDs are low-risk, low-reward investments while stocks offer higher potential rewards but have serious risks.
We’ve answered 324,516 questions. We can answer yours, too.Ask a question