Here's what you can earn by opening a CD this January
When you open a certificate of deposit (CD), you agree to keep your money in the bank for a certain amount of time in exchange for a higher interest rate than is often offered on other savings products. CD terms can be as short as one month or as long as 10 years.
And, right now is an especially good time to open a CD. Rates are high as a result of the Federal Reserve's repeatedly raising the federal funds rate – but rate cuts could come in 2024. Luckily, when you open a CD, your rate is locked in for the full term, so you'll earn interest at that rate until your CD matures.
Another benefit of a CD is that you can calculate precisely how much interest you'll earn before opening the account. Here are a few examples of what you could earn if you open a CD today.
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Here's what you can earn by opening a CD this January
When opening a CD, it's important to choose the right term for your situation. You're agreeing to keep your money in the account for the entire term — and there are generally steep penalties for withdrawing your money before the term is up. As long as you keep enough money on hand for an emergency, that could be a good thing.
"A CD is a great place to save that money," says Hanna Horvath, a certified financial planner. "It removes the temptation to spend that money."
It's also important to know what you could earn in interest with different CD terms. Here's what you can expect to make in interest with a few popular CD terms right now.
3-month CD
A 3-month CD lets you earn interest without having to commit to a long CD term. Right now, you can get an interest rate of up to 5.66% on a 3-month CD. Here's how much interest you could earn at that rate with different deposit amounts:
- $1,000: $13.86 in interest for a total balance of $1,013.86
- $5,000: $69.30 in interest for a total balance of $5,069.30
- $10,000: $138.59 in interest for a total balance of $10,138.59
- $20,000: $277.18 in interest for a total balance of $20,277.18
1-year CD
Right now, you can get a rate of up to 5.66% on a 1-year CD. Here's how much interest you could earn at that rate with different deposit amounts:
- $1,000: $56.60 in interest for a total balance of $1,056.60
- $5,000: $283 in interest for a total balance of $5,283.00
- $10,000: $566 in interest for a total balance of $10,566.00
- $20,000: $1,132 in interest for a total balance of $21,132.00
3-year CD
If you open a 3-year CD today you could get an interest rate of up to 5.23%. Here's how much interest you could earn at that rate with different deposit amounts:
- $1,000: $165.25 in interest for a total balance of $1,165.25
- $5,000: $826.24 in interest for a total balance of $5,826.24
- $10,000: $1,652.49 in interest for a total balance of $11,652.49
- $20,000: $3,304.98 in interest for a total balance of $23,304.98
5-year CD
Right now, you can get an interest rate of up to 4.89% on a 5-year CD. This could be a good choice for the money you won't need access to in the near future. Here's how much interest you could earn at that rate with different deposit amounts:
- $1,000: $269.61 in interest for a total balance of $1,269.61
- $5,000: $1,348.05 in interest for a total balance of $6,348.05
- $10,000: $2,696.10 in interest for a total balance of $12,696.10
- $20,000: $5,392.21 in interest for a total balance of $25,392.21
The bottom line
Interest rates for CDs are high right now, meaning you could earn a decent return for depositing your money into a CD account for the full term. CDs are also a safe choice, as CDs are insured by the FDIC or NCUA at up to $250,000 per depositor, per account. Just make sure you won't need the money during the term of the CD to avoid early withdrawal penalties.
