How much can a 3-year CD make?
You may be able to earn an impressive return with a certificate of deposit (CD) in today's high interest environment - that's a fact that's been plastered across financial media for months now. The Federal Reserve increased its federal funds rate target 11 times over the past two years, which has driven returns on deposit accounts to highs we haven't seen in quite some time.
But what exactly do today's high interest rates mean in terms of dollars and cents? How much of a return do you stand to make by depositing your money in a 3-year CD, for example? That depends on how much money you deposit and where you open your CD. After all, different financial institutions offer different APYs.
Open a 3-year CD now to lock in today's impressive returns.
How much can a 3-year CD make?
The amount of money you can make on a 3-year CD depends on two factors: the APY your CD pays and the amount of money you deposit into the account. So, it's important to compare your options to make sure you earn the highest APY possible.
Some of the best 3-year CD rates are currently available at Popular Direct, First Internet Bank of Indiana and Barclays Bank. Here's how much you can make on 3-year CDs of different values at each of these institutions:
Popular Direct: 3-year CD with a 5.00% APY
- $5,000: $788.13 (for a total of $5,788.13 after three years)
- $10,000: $1,576.25 (for a total of $11,576.25 after three years)
- $25,000: $3,940.63 (for a total of $28,940.63 after three years)
First Internet Bank of Indiana: 3-year CD with a 4.75% APY
- $5,000: $746.88 (for a total of $5,746.88 after three years)
- $10,000: $1,493.76 (for a total of $11,493.76 after three years)
- $25,000: $3,734.40 (for a total of $28,734.40 after three years)
Barclays Bank: 3-year CD with a 4.50% APY
- $5,000: $705.83 (for a total of $5,705.83 after three years)
- $10,000: $1,411.66 (for a total of $11,411.66 after three years)
- $25,000: $3,529.15 (for a total of $28,529.15 after three years)
Open a 3-year CD now to make your money work harder for you.
Why you should invest in a 3-year CD now
"Looking into purchasing a 3-year CD right now has its positives and negatives," says Michael Arvay, founder and CEO of Marvelous Retirement Planners. "Bad news first, you are locking your money up for three whole years, and when it comes to claiming your returns, it is now taxable." He went on to explain that the "good news is you will get a return for your patience. You get a return for what you're using as your lazy money."
So, the impressive returns CDs offer are a clear reason to open one of these savings vehicles. But that's not the only reason you may want to open a CD as soon as possible.
Rates could start falling soon
The Federal Reserve's high interest rates in response to inflation are the driving force behind today's high CD returns. However, recent data shows that inflation is slowing. If this trend continues, the Federal Reserve is likely to reduce rates in the future.
The good news is that CDs come with fixed returns. So, when you open a CD today, you lock in today's high interest rates for the account's entire term. That means when you open a 3-year CD, you can look forward to strong returns even if rates fall.
A CD is a safe place to store your money
CDs offer a guaranteed return regardless of the state of the economy or stock market. They're also deposit accounts. That means the vast majority of your options are either FDIC or NCUA insured for up to $250,000. So, even if the bank you open your CD with files bankruptcy, your money will be safe.
You may be more likely to meet your savings goals with a CD
It can be difficult to meet savings goals. With impulse buys around every corner, there's probably always something tempting you to dip into your savings account. CDs can make you think twice before you do.
When you open a CD, you agree to keep your money in the account for the entire term. So, you'll usually pay a penalty if you tap into the money early. As such, CDs come with a built in tool for meeting your savings goals. After all, if you have to pay a penalty to tap into your savings when you don't absolutely need to, chances are you'll be less likely to do so.
Meet your savings goals with a 3-year CD today.
The bottom line
The interest rate environment is a cyclical one and some experts predict that the high interest rate cycle we're in currently will cool soon. So, it may be a wise idea to open a 3-year CD as soon as possible. When you do, you'll be taking advantage of a safe way to lock in today's high returns for years to come, allowing your money to grow undisturbed regardless of what happens in the larger rate environment.
