While the best CD rates have softened from the 20-year peak notched last year, you can still earn historically high returns from 4% to 5.50%. $10,000 deposited in a top-paying CD can earn hundreds—or even thousands—of dollars in interest.
You can still earn a yield of 4 percent APY on a 5-year CD. Of course, you could earn much more in the stock market, but you could also potentially lose all of your money invested in the market also. So for safe money that you can't afford to lose and don't need during the CD term, a CD can make sense.
If you put $500 in a CD for five years, how much would you make? This depends on the CD rate. A five-year CD at a competitive online bank could have a rate of 4.00% APY, which would earn around $108 in interest in five years. A five-year CD with a 1% rate would earn about $26.
While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.
In a financial climate where interest rates are likely to fall, locking in a high-rate, long-term CD can be a smart move. By depositing $10,000 into a CD now, you can take advantage of currently high rates, protect yourself against future rate cuts and enjoy significant returns on a low-risk investment.
Like savings accounts, CDs earn compound interest, meaning that the interest you earn—based on the fixed interest rate of the account—is periodically added to your principal. Then that new total amount earns interest of its own. APY refers to the amount you earn in one year, taking compound interest into account.
Limited liquidity: Without a CD laddering strategy, you can't take money out whenever you wish and avoid a penalty. Your access will be more limited than what you'd get with a savings or money market account.
5-year CD returns on $100,000
The returns you would earn on a 5-year CD are as follows: At 4.0%: $21,665.29, for in a total balance of $121,665.29 at the end of the term. At 4.5%: $24,618.19, for in a total balance of $124,618.19 at the end of the term.
The best investment for 10k includes different types of tax-free investments, such as pensions, stocks and shares ISAs and lifetime ISAs. You can choose what to invest in within these products. Each tax-free investment type comes with an annual allowance, and you choose how best to invest your ISA allowance.
Interest earned on CDs is considered taxable income by the IRS , regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
The biggest potential risk to your CD balance is fees. CDs typically come with early withdrawal penalties to keep account holders from dipping into their funds before maturity. These penalties can significantly reduce your overall return.
As Beene notes, "The recent rate cuts by the Fed have already produced small drops in the rates of CD and savings accounts at many major banks, and we're going to see that continue if interest rates drop. If you want to lock in a certain rate a CD currently provides, it would be a good idea not to wait."
How much interest would you earn? If you put $20,000 into a 5-year CD with an interest rate of 4.60%, you'd end the 5-year CD term with $5,043.12 in interest, for a total balance of $25,043.12. Not all CDs offer that interest rate, though.
A five-year CD is a low-risk investment with predictable returns and a significantly higher yield than traditional savings. When interest rates are high, a five-year CD allows you to lock in an attractive rate for a relatively long time.
While there aren't any financial institutions paying 7% on a CD right now, there are other banks and credit unions that pay high CD rates. Compare today's top CD and savings rates.
If you're looking for a fixed, predictable rate of return on your savings, a CD account can be a good option — especially when rates are still high. With some of the top earning 5-year CD rates today, you can earn over $75 in interest on a $500 deposit with no effort on your part.
Whether you should put $1 million in a CD depends on your financial goals, risk tolerance and the need for liquidity. CDs are a safe investment, generally offering fixed, predictable returns. However, they typically offer lower interest rates compared to other investment options and tie up your funds for a set term.
Most CDs compound interest at a monthly or quarterly frequency, but some compound annually. The more frequently interest is compounded, the more you'll earn.
CD rates remain at levels we haven't seen in years, and many financial institutions are offering rates of 4% to 5% or more on their long-term CDs. With a rate that high, a $10,000 investment in a 5-year CD could potentially grow to over $12,000 by the end of the term — and that's without any additional contributions.
If you were to place $500,000 in a high-yield savings account with a 2.15% APY and wait one year, you will have earned $10,750 in interest. This rate is likely insufficient to keep up with annual inflation, which means your money will become less valuable at a higher rate than when it's accruing interest.
From mid-2023 to September 2024, many banks offered attractive certificate of deposit (CD) rates of around 5%. But now that the Federal Reserve has been cutting rates, CD yields are dropping too. Despite lower rates, CDs remain a solid option for growing your savings.