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CDs vs. bonds: How do these safe-haven investments compare?

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Updated: April 04, 2024

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Certificates of deposit and bonds are safe plays for investors who might be weary of the wild waters of the stock market. They offer predictable – if conservative – returns that can help mitigate the risk of a portfolio heavy in equities. 

But how to choose between CDs and bonds? Are you ready to loan your money to a bank – or to a corporation – in exchange for a lower but steady return? Whether you're a seasoned investor or just starting out, understanding the pros and cons of these slow-burning investment vehicles is important as you consider your risk-reducing options.

In the end, however, it all comes down to interest.

Several factors influence CD interest rates, including the term length, the amount deposited, and the prevailing federal fund rate. When you acquire a CD, the interest rate is fixed, provided the funds remain in the account for the agreed term – which usually range from 3 months to 5 years. CDs have been popular in recent years, with APYs routinely topping 5% – thanks largely to online banks who’ve raised their CD rates in unison with rising interest rates set by the Federal Reserve.

In the case of bonds, their interest rates can be impacted by the federal fund rate, the issuing entity's credit ratings, and overall market dynamics. Once purchased, bonds generally keep their fixed interest rate, offering consistency throughout the investment.

Bonds vs. CDs

CDs and bonds have a lot to like for risk-averse investors. They’re often considered safer investments compared to stocks but serve different purposes in a diversified portfolio. Let’s explore the definitions, differences, benefits, and specific comparisons between CDs and various types of bonds.


A CD is a type of federally insured savings account with a fixed interest rate and fixed date of withdrawal, known as the maturity date. Offered by banks and credit unions, CDs typically offer higher interest rates than traditional savings accounts, but withdrawing funds before maturity can result in penalties.

A bond is a fixed-income instrument representing a loan made by an investor to a borrower (typically corporate or governmental). Bonds are used by companies, municipalities, states, and sovereign governments to finance infrastructure projects and operations. The bondholder receives periodic interest payments and the return of the bond's face value when it matures.


The primary differences between CDs and bonds lie in their risk profiles, interest rates, liquidity, and the way they are accessed and traded.

Risk: CDs are generally considered safer, as they are FDIC insured up to $250,000. Bonds, depending on the issuer, can have varying levels of risk tied to the project or development the investments are funding.

Interest rates: CDs typically have fixed interest rates, while bonds can have fixed or variable rates.

Liquidity: Bonds can be sold before maturity, providing greater liquidity, albeit with potential market risk. CDs, however, typically penalize early withdrawals, though some banks are beginning to offer no-penalty CDs.

Access and trading: CDs are purchased through banks or credit unions, while bonds can be bought through brokers, bond funds, or directly from the government.

CD benefits

CDs are ideal for investors seeking a low-risk investment with a guaranteed return. They are well-suited for short-term goals, like saving for a car or a down payment on a house. They also appeal to retirees or conservative investors who prioritize capital preservation over high returns.

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Who should consider investing in CDs?

CDs are particularly well-suited for conservative investors who prioritize the security of their capital over high returns, such as retirees looking to preserve their savings, or those nearing retirement who want to reduce exposure to volatile markets. CDs are also a smart option for individuals with specific, short-to-medium term financial goals, like saving for a down payment on a house or funding a child's education, due to their predictable returns and varied term lengths. 

CDs also serve as a valuable component in a diversified portfolio, offering balance and stability alongside more aggressive investments. First-time investors and those with a low-risk tolerance also find CDs appealing due to their straightforward, insured nature, providing a safe intro to the world of investing – without the anxiety of market fluctuations.

Bond benefits

Bonds are suitable for investors looking to earn regular income or diversify their portfolio away from stock market volatility. They are particularly attractive for medium to long-term goals and for those who need income. The choice of bond – corporate, municipal, or government – depends on the individual’s risk tolerance, investment horizon, and tax considerations.

Who should consider bond investments?

Bonds are a strategic choice for those seeking a balance of moderate risk and steady income, particularly appealing to individuals with longer-term investment horizon. They are well-suited for investors looking for regular income streams, such as retirees or those nearing retirement who require a consistent cash flow while preserving their principal. 

The conservative returns typically associated with bonds are ideal for risk-averse investors who are eager to avoid, or reduce the risk of, stock market exposure. They’re great portfolio diversification tools, mitigating risk by offsetting the unpredictability of equities. 

Young investors looking to gradually build a more conservative portion of their portfolio as they approach major life milestones, like buying a house or planning for family expenses, may find bonds particularly beneficial. Additionally, socially conscious investors can opt for municipal or green bonds, aligning their investments with their values by supporting public projects or environmental initiatives.

CDs vs. bonds

Diving deeper into the comparison, let’s examine specific bonds and how they stack up against CDs.

CD vs. Treasury bond

Treasury bonds are long-term, government-issued securities with terms typically ranging from 20 to 30 years. They offer the safety of being backed by the U.S. government. Comparatively, CDs have shorter terms and might offer higher interest rates in the short term but lack the long-term security and tax advantages of treasuries.

CD vs. I-Bond

I-Bonds are a type of U.S. savings bond designed to protect against inflation. Their interest rate combines a fixed rate and an inflation rate. CDs, offering a fixed interest rate, might underperform in comparison during periods of high inflation. However, CDs are more straightforward and accessible, with fixed terms and predictable returns.

CD vs. Savings bond

Savings bonds, like Series EE bonds, are government-backed and offer a fixed interest rate for up to 30 years. They are a low-risk investment but typically offer lower returns than CDs over the short term. Savings bonds are better suited for long-term, conservative investors, while CDs can be more advantageous for short-term savers seeking higher interest rates.

Safety, with a catch

CDs, when held at FDIC-insured banks or NCUA-insured credit unions, offer a layer of protection, guaranteeing your investment up to $250,000. Bonds, however, don't enjoy the same safety net. 

But bondholders do have a certain degree of financial recourse if their bond-funded company or project goes bankrupt. They’re entitled to a claim on the company’s assets and cash flows, potentially allowing them to recover a portion of their investment. It's important to fully understand the bond’s terms and any protections it may include for your money if the company or project goes south.

Both CDs and bonds have their unique advantages and serve different purposes in an investment portfolio. CDs offer safety and simplicity, ideal for short-term goals and conservative investors. 

Bonds, on the other hand, provide opportunities for income, diversification, and potentially higher returns over the long term, but with varying degrees of risk depending on the type of bond. 

The choice between CDs and bonds ultimately depends on the individual’s financial goals, investment horizon, risk tolerance, and need for liquidity.

CDs vs. bonds, at a glance

Investment type
CD (Certificate of Deposit)
Banks or Credit Unions (Brokered CDs through brokerages with some differences)
Varies: U.S. Treasurys (Federal government), Municipal (State/Local governments), Corporate (Companies)
Typically from 3 months to 5 years
1 to to 30 years
Rate of Return
Subject to change; refer to current best CD rates
Fluctuates; refer to Treasury rates and varies for other bonds and bond mutual funds
Interest Payment Timing
Typically at maturity for standard CDs, enabling compound interest (Alternative options for regular payments may exist)
Regular installments until maturity
Penalty for Early Access
Early withdrawal penalty, often several months of interest (No-penalty CDs are an exception
Potential loss in value if sold before maturity
Protection of Funds
Federally insured up to $250,000 per customer at insured banks
Varies: Treasuries are government-backed and very safe; corporate bonds carry bankruptcy risks

More investing options:
Best bond funds

Chris Clark Freelance Contributor

Chris Clark is freelance contributor with MoneyWise, based in Kansas City, Mo. He has written for numerous publications and spent 18 years as a reporter and editor with The Associated Press.


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