Municipal bonds come with great tax-saving benefits too. The exemption from local taxes could provide significant savings for investors who live in high income-tax states.

For example, Treasury bond investors are only required to pay federal taxes on their interest payments, but not state. However, bonds issued by the government often come with tax advantages. So, if you happen to be in the 24% tax bracket, you'd need to pay $24 in taxes for every $100 of CD interest payments you accrue. Bonds are often tax-advantaged, CDs are notĬD income is generally taxed as normal income. For this reason, federal bonds and CDs carry virtually the same (very low) level of risk.

However, it should be noted that Treasury bonds are backed by the same federal government that funds the FDIC (Federal Deposit Insurance Corporation). This means that some bonds are riskier investments than CDs. So if you lend money to a company that later finds itself in financial straits, it may be unable to fulfill its debt obligations. Municipal bonds and corporate bonds don't come with this kind of federal insurance protection. And credit unions, which offer their own version of CDs called 'share certificates,' also carry $250,000 of federal insurance via the National Credit Union Share Insurance Fund. CDs are insured, bonds are notĬDs come with FDIC insurance of up to $250,000 per account-holder. So when interest rates go down, bond prices tend to go up and vice versa. As a general rule, bond prices have an inverse relationship with interest rates. While investors can choose to hold their bonds until maturity, many can also be sold beforehand on the secondary market.

Key differences between bonds and CDsįrom a strategic standpoint, here are the main features that differentiate bonds and CDs: Bonds trade on markets, CDs don't Show Pros, Cons, and More chevron down icon An icon in the shape of an angle pointing down.

Tax rate on cd interest