Investing: P2P Lending vs. Bank CDs

I'm going to start this post by stating something that is stupidly obvious: there are a huge number of different ways to invest your money.  From stocks and bonds, to investing in new companies, to burying your cash in the backyard, if you can imagine it, you can probably invest in it (dream a little dream, you dreamers!).  For the purposes of this article though, I'm only going to focus on two that I think have a good deal in common: peer to peer (P2P) lending and certificates of deposit (CDs).

How P2P Lending and CDs Are Similar

The key similarity both investments share is that both require you to tie up your money for a certain, specified amount of time.  As such, both are essentially illiquid investments.*  However, this length of time is fairly short-term, particularly when compared to 30 year bonds, for instance. 

For CDs, your money can be tied up anywhere between three months and five years, depending on how long you choose to invest.  For P2P, (which I'm basing on my experience with Lending Club, as I am unfamiliar with Prosper and others), your money is invested for either three years or five years.**

With the above similarity stated, let's look at the pros and cons of each investment.