How CDs Work and When They Make Sense for Income Investors

Core Insights - Certificates of deposit (CDs) are regaining attention as a stable income-generating tool amid elevated interest rates, appealing to income-focused investors who prioritize predictability over flexibility [2][6] Group 1: Understanding CDs - A certificate of deposit is a time deposit with a fixed interest rate for a specific term, during which funds are generally inaccessible without penalty [3] - CDs are typically issued by federally insured banks and are protected by the FDIC for up to $250,000, ensuring the safety of principal and earned interest [4] - Brokered CDs can be obtained through brokerage firms, potentially offering higher rates, but investors should verify the legitimacy of the deposit with regulatory bodies [5] Group 2: Characteristics and Benefits of CDs - CDs provide predictable income through fixed interest rates and defined maturity dates, making them one of the lowest-risk income investments available [7] - The structure of CDs locks in both interest rates and maturity dates, shielding investors from market volatility while sacrificing some flexibility [6] - Key terms related to CDs include the length of the term, annual percentage yield (APY), and maturity date, which are essential for understanding their function in an income strategy [8]