3 Month CDs are a common length offered by many financial institutions. A three month CD account is an agreement between the investor and the financial institution to invest funds into a CD account for a 3 month (90 day) period. 3 month cds can be a great way to earn interest on funds safely, without restricting the funds for a long period of time.
If you are considering investing in a 3 month Cd, then you may want to consider these advantages and disadvantages.
3 Month CD- Advantages of Investing in a 3 Month Certificate of Deposit
There are certainly advantages to investing in a 3 month CD, which makes this a worthwhile investment for many. Here are some of the advantages:
- 3 month CDs are a safe investment. As long as you select a bank that is FDIC insured (and invest within the FDIC limits), then your funds are insured. This makes it a very safe investment. This is a huge advantage when compared to much more risky investments such as stock.
- 3 month CDs offer guaranteed returns. When investing in a 3 month certificate of deposit, there is no guess work involved. You can know the return on your investment up-front by doing a few simple calculations.
- 3 month CDs will not restrict your funds long-term. If a better investment opportunity presents itself, you can withdraw your funds as soon as the short 3 month term is over, and invest in other ventures. Thus, the funds are only held for a short time.
- 3 month CDs may allow for renewals. After your 3 month investment period, the CD may automatically renew at the current rate if you wish. Thus, it is similar to investing long term, but you are only obligated to maintain the funds for a 3 month period. You can often choose to renew the CD, or close the account. This offers the best of both worlds- safe investment with no long term obligations.
3 Month CDs: Disadvantages of Investing in 3 Month CDs
As with all investments, there are also some disadvantages to investing in 3 month cds. Here are a few:
- 3 month CDs may offer lower cd interest rates. Since the financial institutions will only have the funds for a short period of time, they do not typically offer high rates. Thus, CDs with shorter lengths are typically offered at reduced rates compared to CD accounts held for years. So if you invested the funds in a 3 month CD, and then re-invested in another CD (or allowed the CD to renew at the end of the term), then you could lose money compared to if you had actually just invested in a longer CD length initially.
- 3 month CDs may require a large up-front investment. Some banks may restrict shorter length CD accounts to a minimal amount (ie, $1,000 or even $10,000). Thus, the “minimum investment” restriction that some banks may require will eliminate this as a possiblity for some investors.
- 3 month CD terms may not include special terms and perks. Some of the terms, such as a “bump up rate feature,” may not be offered in shorter term CDs. Since the investment amount is for a very short period, you may miss out on some of these beneficial features that may be offered on more serious and long-term CDs.
Conclusion: 3 Month CDs Can Be a Great Investment
If you find yourself with a lot of funds to invest, you want a guaranteed and calculated return, and you don’t want to restrict your funds for a long period of time, then a 3 month CD may be a great investment opportunity for you. As always, you should read the CD terms, shop around for CD rates, and match the current offers to your own financial situation. This will ensure you make the right decision every time. Keep reading to learn more about CD lengths.