Considering CDs as Protection?

CDs is an abbreviation for Certificates of Deposits. It is a short- to medium-term deposit with a specific fixed interest rate in a financial institution. Moreover, its importance surfaces during unfavorable market trends such as a bear market and it turns into an income-producing debt investment for investors.

The concept of using certificates of deposits during bear market primarily lies on the stability it can offer to investors during a difficult economic time. With CDs, the investor is guaranteed with the principal plus a fixed interest rate at maturity. The period of a CDs term can vary but the usual purchases are quarterly e.g. three-month, six-month, nine-month and yearly e.g. one to five years. One can also look for banks that offer CDs with even longer terms.

Certificates of Deposits behave like time deposits. At the time of purchase, the purchaser commits his or her deposit in the bank for a specific period of time. At this point, the purchaser should already be resolved in leaving a particular sum of investment in the bank for a period of time. Otherwise, a penalty is imposed as a liability to the purchaser if he or she decides to take back the deposit before maturity. But given that all these cautions are properly addressed, CDs offer a guaranteed return with the agreed fixed interest rate even if the market prices fall.