A corporate bond is a bond issued by a corporation to raise capital. Most corporate bonds pay a fixed rate, meaning you would get a consistent return on your investment each year.
Pros of corporate bonds
Corporate bonds are predictable, and they come with varying terms. Because bonds are subject to credit rating, you can find corporate bonds with higher yields and a lower rating, or vice versa. This flexibility lets you find an investment that fits your risk tolerance.
Cons of corporate bonds
Because corporate bonds are usually fixed rate, they do carry interest rate and inflation risks, in which rising rates or inflation could devalue the bond. Also, if the issuing corporation of a corporate bond defaults, the bond loses its value. Corporate bonds also have a relatively illiquid secondary market.
A CD is a fixed-rate and fixed-term investment that yields consistent returns. These are set investments that are insured by the FDIC up to $250,000, making them a low-risk investment.
Pros of CDs
CDs have guaranteed returns that are often higher than what savings accounts offer. You can also choose from a variety of terms to find an investment that meets your short- and long-term goals.
Cons of CDs
When you purchase a CD, you lock in your funds for a set amount of time. Withdrawing funds early could lead to getting more or less than your original investment, depending on interest rate movements. CDs are also subject to interest rate and inflation risks, in which rising rates, inflation or both could make the CD returns less valuable relative to other assets.