How much money should I put in a CD?
Minimum deposits vary based on account and financial institution, but a required deposit of around $500 to $1,000 is typical when opening a CD. However, it is possible to find CDs with no minimum deposit requirement. Jumbo CDs are like regular CDs but require much larger minimum deposits.
Minimum deposits vary based on account and financial institution, but a required deposit of around $500 to $1,000 is typical when opening a CD. However, it is possible to find CDs with no minimum deposit requirement. Jumbo CDs are like regular CDs but require much larger minimum deposits.
| Top Nationwide Rate (APY) | Total Earnings | |
|---|---|---|
| 6 months | 5.76% | $ 288 |
| 1 year | 6.18% | $ 618 |
| 18 months | 5.80% | $ 887 |
| 2 year | 5.60% | $ 1,151 |
For some people, it can be worth putting money into a CD. If a person is seeking a riskless investment with a modest return, CDs are a good bet—you'll earn a higher rate than you would with a checking or savings account, but you'll have to commit your funds for a fixed period.
Depending on the bank, a $5,000 CD deposit will make around $25 to $275 in interest after one year. Online banks and credit unions pay appealing CD rates, and you can earn more interest than at big brick-and-mortar banks. When choosing a CD, consider other factors beyond the interest rate of an account.
That all said, here's how much a $1,000 CD will make in a year, based on four possible interest rate scenarios: At 6.00%: $60 (for a total of $1,060 total after one year) At 5.75%: $57.50 (for a total of $1,057.50 total after one year) At 5.50%: $55 (for a total of $1,055 total after one year)
Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.
Open your CD as part of a retirement account
So, your income taxes will be deferred until you tap into your IRA in retirement. If you opt for a Roth IRA, your money grows tax-free. You do pay income taxes on the money you open the IRA with, but you won't pay income taxes on its growth.
If you purchase a short-term CD that matures the same year it was purchased and earn $10 or more, you'll have to pay taxes on it for that year. If the term of such a CD spans over two calendar years, you'll pay taxes on the interest you earn on two consecutive tax returns.
Plus, you can often earn more in a six-month CD than you would in a high-yield savings account. Six-month CDs are worth it if you know you need to make a major purchase within the year and want to earn as much interest as possible on your money without putting it at risk.
Is a 12 month CD worth it?
Is a 12-Month CD Worth It? A 12-month CD can be a worthwhile investment if you're seeking guaranteed growth and are able to keep your money invested for a year. Before investing, be sure you're getting the best one-year CD rates by shopping around and comparing rates from different banks.
One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal. “During times of uncertainty, liquidity is often paramount.
Savings accounts give you more flexibility to make withdrawals, but CDs offer fixed interest rates that can boost some savings if you're able to leave your money alone for a set time. The best place to deposit your cash generally depends on how long you're willing to leave it in your account.
CDs can help accelerate your savings, but they're not always worth it. If there's a chance you'll need access to your money during your CD's term, consider a high-yield savings account or money market account. But if you have a pool of money you can afford to lock up, it may be worth capitalizing on high CD rates.
- Invest in your 401(k) and get the matching dollars. ...
- Use a robo-advisor. ...
- Open or contribute to an IRA. ...
- Buy commission-free ETFs. ...
- Trade stocks.
- TotalDirectBank – 5.50% APY.
- Financial Resources Federal Credit Union – 5.43% APY.
- ConnectOne Bank – 5.40% APY.
- Apple Federal Credit Union – 5.40% APY.
- USAlliance Financial – 5.40% APY.
- Alliant Credit Union – 5.40% APY.
- Bask Bank – 5.40% APY.
- Expedition Credit Union – 5.40% APY.
A certificate of deposit is a great way to stash money you don't think you'll need access to for a while. It's safe and secure, plus the interest rates are generally higher than you'll get with other savings products.
According to the Federal Deposit Insurance Corporation (FDIC), as of Sept. 18, 2023, the average interest rate for a 12-month CD is 1.76%, more than double the 0.45% average rate reported for savings accounts.
You'll earn $850.50 for a total of $15,850.50 after one year when you open a $15,000 1-year CD with Popular Direct when calculating the returns at current rates. A 1-year CD at LendingClub Bank or CIBC Bank USA will produce $847.50 or $843.00 in returns, respectively. Lock in strong returns with a one-year CD today.
Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money.
Should I buy a CD now or wait?
CDs are worth it in 2024 for the right investor. After rate hikes in the past year and a half, many of the best CDs yield well over 5% but these rates may not last for long. For some, it could be worth it to lock in high rates before the Fed starts cutting rates later in the year.
Having multiple CDs can be a great way to diversify your portfolio without sacrificing as much liquidity. Risk is low, and CDs provide steady returns. Just know that owning too many CDs could cut you off from other high-return investments. Investing is one part of the financial journey.
The taxes on CDs are similar to those on other types of interest income, such as interest earned on bonds. Both are considered taxable income and subject to federal income tax, which is based on your marginal tax bracket.
You can rollover your 401(k) account into a CD without any penalties or taxes. But you need to make sure you're rolling over into an IRA CD, specifically. And always ensure to roll over into a like-kind account, whether a traditional or Roth retirement account, or you might get hit with a surprise tax bill.
The short answer is yes. CDs are federally insured by the FDIC. The FDIC insures deposit accounts up to $250,000 per depositor, per FDIC-insured bank and per ownership category. This includes savings and checking accounts as well as money market accounts and CDs.
