CD or Treasury? Five Factors to Consider

Certificates of deposit (CDs) and Treasuries both can offer steady, predictable investment income—but how to decide between them? Here are five factors to help you choose.

Two of the historically safest types of fixed income investments are certificates of deposit (CDs) and Treasury bonds. Both CDs and Treasuries can be a good choice when you want steady, predictable investment income—but how should an investor decide between them?

Before choosing CDs or Treasuries, we suggest you first start with your objectives. Not considering your objectives before investing is like taking a road trip and only being concerned about the tires on the car—not where you're going. The benefits of both CDs and Treasuries are that they can generate income, protect your principal, and help diversify your portfolio. Additionally, Treasuries can have tax benefits when compared to CDs. However, CDs and Treasuries are fixed income investments and subject to similar risks as other fixed income investments. For example, if interest rates rise, the price of a CD or Treasury will fall and if you need the investment prior to maturity and have to sell it, you may lose money.

When considering between the two investment options, there are five factors that investors should consider.

1. Security: Both CDs and Treasuries are very high-quality investments. CDs are bank deposits that pay a stated amount of interest for a specified period of time and promise to return your money on a specific date. They are federally insured and issued by banks and savings-and-loans institutions. CDs are backed by FDIC insurance up to $250,000 per bank per depositor. There are bank-issued CDs and brokered CDs. The two are similar but have some important differences.

You can purchase multiple CDs from different banks while still holding them in the same account type to protect more than $250,000. For example, if you own two CDs in your brokerage account, $250,000 from one bank and $250,000 from a second bank, and you have no other deposits at those banks, you're covered for $500,000 even though they’re held in the same account. We suggest that if you're investing more than $250,000 in CDs, be sure that you're not exceeding the FDIC insurance limits at each individual bank.