Finance professionals hear this all the time: "is a certificate of deposit a good deal?" Well, it depends. It depends on the interest rate, of course -- but it also depends on a lot of other things. If you're looking at getting a certificate of deposit, read on to discover some of the questions of context that can help you make better choices.   

Getting Locked In

In some ways, looking at getting a certificate of deposit is a chronological puzzle. What are you getting for your money, and what are you giving up? How long will you need to keep money in the account in order to accrue the interest that you want? You'll need to ask providers (such as Rio Grande Credit Union) if there are any early withdrawal penalties, and what those might be. You'll need to understand how the money piles up during the term of the CD. All of this is critical in determining how good a deal you can get on a certificate of deposit.

Other Bank-Side Options

Anytime you're looking at a certificate of deposit, you also have other similar options that are just slightly different in the ways that they accumulate interest. One is a money market account, where you have a little more fluidity, but possibly less interest over time. Another is a high interest checking account, and then there's always the 401(k) for workers, or the individual retirement account for the self-employed or others who don't have an employer-funded option.

Take a Random Walk on Wall Street

Outside of the above options, you also have some of those wilder options that involve taking your money and putting it into higher risk investments. Whether or not you've read the famous bestseller by Burton Malkiel, Wall Street investment can be significantly random, and your money can be exposed to quite a few dangers. On the other hand, gains can be considerably larger than anything you get with a certificate of deposit, especially in a bull market.

Your Total Assets Picture

It's also important to look at your investment choices in the context of your total net worth. If you only have one nest egg, it may not make sense to put it all into a certificate of deposit. But if you already have some higher risk investments, it may be an excellent idea to park some of your other money in a certificate of deposit, which is relatively safe and still bears some amount of interest. 

Along with these considerations, keep watching interest rates and how changes open up new options for investing.