Any suggestions on how to legally put Damage Deposits into a CD to gain interest? 

If you have a BAD tenant experience on this property as a rental and lose several months of rent and incur substantial tenant damage that is all coming out of pocket whereas if you had even a handful of rentals the performing rentals and the monies budgeted for capex/maintenance/vacancy will carry that sort of loss.

They don't inspect and only discover damages three years later when the tenant leaves.

Issue: Last October 2023, a pipe under the floor leaked from my upper condo unit to the downstairs unit causing damage to the neighbor's kitchen.My condo was paid off, so little did I know, I didn't buy an insurance policy at that time (failed). 

But I have pictures from before they moved in and plenty of pictures of the mess and damages. 

There were damages and loss of rent.One of the local utility companies verified there was no transfer of service.

Just think about the worst damage a tenant can cause, such being liable for setting your rental house on fire or burning down your rental house and the neighbor's house, etc.

Then deal with the cleaning.In my experience, short-term marijuana smoking hasn't caused any lasting damage.

The reason I ask if it used to ascertain damage to something on the lot (water/sewer/utilities hookups or something) and you don't have pics and mutually signed documentation from the lessor/lessee upon each tenant's move in prior to your ownership, would you be able to justify a charge upon move out?

You will have more bookings and less chance of damage/code enforcement calls with the smaller properties.