Another form of investment in Fixed Income in Dollars is through Certificates of Deposit (CDs), securities issued by international financial institutions. While Bonds are comparable to debentures, CDs are similar to CDBs in Brazil. Understand how CDs work.
What are investments in CDs (Certificates of Deposit)?
The similarity is not just in the name. Both CDBs and CDs can only be issued by financial institutions. In practice, it is like a “loan” made by the investor to a financial institution, which, in turn, remunerates for it following pre-fixed rates specified at the time of application.
They offer an international fixed income alternative to Treasuries and other debt securities in the United States, such as Bonds.
CDs vs. Bonds: What’s the difference?
And here’s an important difference about Bonds: the value of the CD does not fluctuate in the market like Bonds do. This happens because you cannot sell a CD before maturity, which translates into limited liquidity on other investment products. But, for those looking for a fixed income with less volatility, this could be good news.
For those who can give up this liquidity, however, there is a reward: precisely because they do not have windows to redeem the money, financial institutions usually remunerate CDs with higher rates than Bonds.
Due to these characteristics, CDs are often sought after by those looking for more predictability in their investments.
What are the advantages of investing in CDs?
Discover the main characteristics of CDs.
Maturity periods
Certificates of deposit in the US offer a wide range of maturities: in general, they tend to be between 30 days and five years, but it is also possible to find offers with longer maturities.
The longer the term, the higher the remuneration for the investor tends to be, as is also the case with CDBs in Brazil.
Insurance
An important point: just as some fixed income securities in Brazil have insurance, CDs issued in the USA are guaranteed insurance of up to US$250,000 by the FDIC , a body similar to the FGC in Brazil.
Note that not every CD is necessarily issued in the USA. Therefore, check the place of issue to find out if it has this insurance.
And pay attention to how it works: the insurance covers all accounts in the same investor name at the same bank. In other words, it is not valid for each certificate of deposit or for each account that the investor has at the bank.
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