18 Month CDs can be a worthwhile investment for investors looking for a low-risk, guaranteed return on their money. Eighteen months (or a year and a half), is a term that is commonly offered by many banks and financial institutions as a CD length, and it is definitely worth it to consider investing in an 18 month CD.
18 Month Certificate of Deposit accounts work like all of the others. You simply shop around for a bank or financial institution offering a competitive interest rate and good terms, and you open the account and invest your funds. You then wait for 18 months, and at maturity, you can claim your principal and interest earnings. As long as you do not withdraw the funds early, they you will not have to worry about early withdrawal fees and penalties.
While an eighteen month CD is a great invesment, it may not be best for everyone. There are both advantages (pros), and disadvantages (cons) to investing in this length of CD.
18 Month CD: Advantages of Investing in an 18 Month CD
Some of the benefits of investing in this type of CD include:
- Low Risk Investment–Certificate of deposit accounts are known for their low-risk. Since CD accounts are usually insured by the FDIC (for qualifying financial institutions), then funds are all-but-guaranteed. This is great if you aren’t willing to risk losing the funds in more risky investments such as stock.
- Higher Rates Compared to shorter terms–18 month CDs will typically have much higher rates than CDs of shorter lengths. So as long as you can stand investing for a little longer, you will earn a better interest rate compared terms of 1 year or less.
- Perfect for those investors who don’t want to tie up funds for a long time. 18 month CDs would be perfect for those investors who want to earn interest safely, but without tying up their funds long-term.
18 Month CD: Disadvantages of Investing in an 18 Month CD
- May Restrict Other Investment Opportunities–If another more lucrative investment presented itself within that year and a half, you would have to wait the full maturity to use the funds invested in your CD (or otherwise face penalties or loss of earnings).
- Return May Be Lower Than Other “Higher Risk” investments–With more risk, also comes more reward potential. CDs are great in the fact that you can get a (basically) guaranteed rate of return on your money safely. However, the return may be low compared to stocks, real estate, bonds, or other investments which carry more risk. This is especially true in a bad economy (or recession) when CD rates are decreased significantly.
- Earnings will be taxed–Like all income, the income you earn from your investment will be considered “income,” and will be taxable by the Federal goverment (IRS), and possibly even at the state level (depending on your state’s tax laws).
Conclusion: 18 Month CDs Are Worth It For The Right Investor
18 month certificates of deposit accounts are a great opportunity to earn interest income for investors looking for the following feature:
- Guaranteeed return or “profit” from the investment
- Insured funds
- Won’t need to withdraw funds until maturity
This may not be the best investment for the following:
- Those willing to assume more risk for higher reward potentials
- Those who may need access to the funds before the 18 months is up
- Those who are willing to invest funds into a longer CD to obtain a higher rate of return.
Keep reading to learn more about CD lengths.