Why you should deposit $5,000 in CD now?
For context, in 2021, when rates were around their lowest, the national average 12-month CD had an APY of just 0.15%. For a $5,000 deposit, this is the difference between earning $250 in interest over a year versus earning only $7.50 over that same time frame.
It's a smart way to diversify your investments
Diversifying your investment portfolio is a fundamental strategy to reduce risk. By putting $5,000 into a 6-month CD, you can allocate a portion of your funds to a low-risk, interest-bearing asset.
CDs are worth investing in for risk-averse investors who want to keep their money safe while maintaining more of its purchasing power. Although you have to lock your money away for a specific amount of time, the payout from a long-term CD can be enticing. For example, Quontic offers a 5.05% APY on their six-month CD.
Earning Average CD Interest Rates
In terms of traditional bank CDs, however, the national average on a 12-month CD is 1.76%, according to the Federal Deposit Insurance Corporation (FDIC). That means that in one year, a $5,000 CD earning the average of 1.76% annual interest would earn $88 before taxes.
CDs offer a guaranteed return
“If you've had your eye on a CD, and especially one of the multi-year maturities, this is the time to lock in — they won't get better by waiting,” McBride says.
How much interest would you make on a $5,000 CD? We estimate that a $5,000 CD deposit can make roughly $25 to $275 in interest after one year. In comparison, a $10,000 CD deposit makes around $50 to $550 in interest after a year, depending on the bank.
With such high interest rates, the earnings on CDs are impressive. 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.
Key takeaways. The national average rate for one-year CD rates will be at 1.15 percent APY by the end of 2024, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 4.25 percent APY at that time.
Whenever you invest in a CD, you lock in the interest rate for the term. If inflation rises during the term, your APY won't be adjusted, so an interest rate that once seemed stellar might be lackluster after accounting for inflation.
The biggest disadvantage of investing in CDs is that, unlike a traditional savings account, CDs aren't flexible. Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded.
How much does a $5000 CD make in 6 months?
For reference, here's how much savers can currently expect to make with a $5,000 CD in six months, with three different interest rates: At 5.50%: $135.66 (for a total of $5,135.66 after six months) At 5.25%: $129.57 (for a total of $5,129.57 after six months)
To turn $5,000 into more money, explore various investment avenues like the stock market, real estate or a high-yield savings account for lower-risk growth. Investing in a small business or startup could also provide significant returns if the business is successful.
But sometimes breaking this rule pays off. Getting a CD when rates are low and breaking it when rates are high might be an opportunity to benefit from a higher-rate CD and earn you more than you would gain otherwise.
You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.
CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs. CDs offer less liquidity than savings accounts, money market accounts, or checking accounts.
CDs offer higher interest rates than traditional savings accounts, guaranteed returns and a safe place to keep your money. But it can be costly to withdraw funds early, and CDs have less long-term earning potential than certain other investments.
CD returns are impressive
What does that mean if you deposit $20,000? Here's how much money you stand to earn: $20,000 at 4.5% APY: $4,923.64 in interest (for a total of $24,923.64 after five years) $20,000 at 4.55% APY: $4,983.32 in interest (for a total of $24,983.32 after five years)
Type of 1-year CD | Typical APY | Interest on $100,000 after 1 year |
---|---|---|
CDs that pay competitive rates | 5.30% | $5,300 |
CDs that pay the national average | 1.59% | $1,590 |
CDs from big brick-and-mortar banks | 0.03% | $30 |
Institution | Term length | APY* |
---|---|---|
Alliant Credit Union | 12 months | 5.15% |
First Internet Bank | 12 months | 5.31% |
EverBank | 9 months | 5.05% |
Synchrony | 6 months | 4.90% |
A certificate of deposit (CD) is a product that offers an interest rate payment in exchange for the customer agreeing to leave the lump-sum investment with a bank for a specific period of time. Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money.
What is the best 12 month CD rate right now?
- Sun East Federal Credit Union – 5.30% APY.
- Northpointe Bank – 5.30% APY.
- Prime Alliance Bank – 5.30% APY.
- Colorado Federal Savings Bank – 5.30% APY.
- Home Savings Bank – 5.30% APY.
- My eBanc – 5.30% APY.
- TAB Bank – 5.27% APY.
- Rising Bank – 5.26% APY.
Long-term CDs (4-5 years)
Four- to five-year CDs, and longer, tend to have the best rates you can find (mid-2023 rates have been an exception). Pledging to leave your money inaccessible for that long can be worth the commitment, especially if you can lock into a high APY before a falling-rate environment.
BEST NATIONAL JUMBO CDs | ||
---|---|---|
CD Bank | 5.20% APY | $100,000 |
All In Credit Union | 4.54% APY | $100,000 |
Luana Savings Bank | 4.42% APY | $100,000 |
Best non-Jumbo option: TotalDirectBank | 5.42% APY | $25,000 |
INSTITUTION | STAR RATING | 6-MONTH APY |
---|---|---|
Bank5 Connect | 4.4 | 5.05% |
Sallie Mae Bank | 4.3 | 4.80% |
Synchrony Bank | 4.2 | 5.15% |
Marcus By Goldman Sachs | 4 | 4.80% |
Best 1-Year CDs - Mature Early 2025 | APY | Minimum |
---|---|---|
Best 3-Year CDs - Mature 2027 | Rate | Minimum |
Lafayette Federal Credit Union | 5.10% | $ 500 |
EFCU Financial | 5.00% | $ 500 |
DollarSavingsDirect | 5.00% | $ 1,000 |
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