A certificate of deposit is a relatively safe investment tool that allows a modest, predictable return. A primary drawback is that investing in a CD ties up the person's funds until the maturity date, according to About.com.Continue Reading
The interest rates on CDs vary based on the length to maturity as well as the deposit amount. However, Bankrate reports national average yields just over 1 percent for one-year CDs as of December 2014. This yield is above the typical yield for a savings account. It is also possible for the investor to calculate the total return on the CD investment based on the time line and interest yield.
A caveat to the higher yield is that the bank gets to hold the money deposited until the yield date, according to About.com. This factor presents a challenge for someone who needs access to the funds for an emergency. If someone does decide to withdraw the money, a penalty is charged that negates interest yield earnings, reports Bankrate. Investing in a CD also ties up the funds so a person can't invest in other opportunities. If someone puts $5,000 into a three-year CD, for instance, that money isn't available if a higher-yield business or investment opportunity comes along during that time.Learn more about Investing