Investment Basics - Certificates

Our office occasionally receives questions regarding the differences between investment certificates and certificates of deposit. It is important to know the difference and to explore the risk factors before investing.

Certificates of Deposit

Certificates of deposit (CDs) are generally considered low-risk investments and grow your money at a fixed, guaranteed rate. CDs are specifically authorized investments on both the limited and expanded list of investment securities. CDs are also insured by the Federal Deposit Insurance Corporation (FDIC) because they are issued by banks or credit unions. Typically, a CD has a predetermined duration period which can range significantly.  Penalties may be incurred for withdrawing funds before the maturation date.

Investment Certificates

Investment certificates are issued by investment or brokerage firms. Depending on the issuer, the term options of an investment certificate can also vary. Investment certificates can be structured similar to CDs issued by banks where term lengths are predetermined, and the interest rate is guaranteed. Penalties would then be incurred for withdrawing funds before the maturation date.

Some investment certificates can also be flexible with liquidation, allowing for frequent deposits or withdrawals without penalty. The interest that the investment certificate offers is usually tied to some investment metric, like the Standard and Poor’s 500 Index or the current savings account rate. Some investment certificates can be tax deferred, meaning taxes are not paid until the certificate matures. An investment certificate is an investment product, unlike a certificate of deposit, and therefore is not insured by the Federal Deposit Insurance Corporation (FDIC). An investor could lose some or all of the principal.

Additional Resources

More information can be found in our Pension Investment Basic Series found in the Investment Basics Topic.

Additional information is provided for in a Statement of Position on Relief Association Investment Authority and in another Statement of Position on Relief Association Investment Policies.

Last Updated May 2024