First things first- what’s certificate of deposit and what’s opportunity cost? Certificate of deposit is a financial product offering a timed deposit. Opportunity cost is one of the fundamentals of investing. It’s nothing but the price one pays for missing out on various opportunities due to the money being already invested. Investing on a single thing i.e. investing more on a single thing (that you believe will give high margin returns) is a smart move, but not always as investing the entirety on a single thing comes with a cost of losing out an opportunity or several opportunities for which the money could has been used. One such use may even be investing in something that is bound to fetch better returns!

Now, how’s certificate of deposit related to opportunity of cost? As obvious as it is, certificate of deposit implies the deposit being untouched for an agreed period of time and that’s a catch sometimes. Certificate of deposits or CD’s are undoubtedly one of the safest ways to make money and accrue one’s savings. But, it has a tendency to clinch away opportunities. Many of the CD holders may nod their heads in agreement to the fact. Consider a situation wherein the interest rates have just doubled than what it was when you had deposited! You may lose out the piece of cake straight away. The case may be the exact opposite if the downside of interest rates occurs (like it recently did in many of the banks worldwide- banks of US, Taiwan etc), but one has to accept the fact that CD’s do have a natural tendency of cutting down opportunities.

So, the CD’s are the safest bet for savings and they are a blockade of opportunities too. How do we go about with it then? Well, regulation comes in handy here. The term for which the deposit is done needs to be selected wisely. A longer term may fetch a slightly more interest rate, but one need to question is that actually worth the time? Many banks offer various terms for CD’s and many of the online banks have recently launched more flexible options for the terms.

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