How much should you deposit in a CD right now? Here's what experts say

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.

But with rates in flux, how much should you put into a CD right now? After all, locking up too much money could mean missing out on better opportunities. On the other hand, investing too little might not make the most of today's still-competitive rates.

Financial advisors say the optimal CD deposit amount depends on your financial situation and life goals. Here's what you need to know about choosing the right deposit amount in today's shifting rate environment.

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How much should you deposit in a CD right now? Here's what experts say

Instead of fixating on a set CD deposit amount, "[think about] how long you can tie up your money," advises Steven Conners, founder and president of Conners Wealth Management. He warns that early withdrawals come with penalties.

Henry Yoshida, co-founder of Rocket Dollar, emphasizes that CDs shouldn't replace your emergency fund or long-term investments.

Before opening one, he recommends taking the following steps:

• Contribute at least 10% of income toward long-term retirement investments.
• Maintain an emergency fund in a high-yield savings account (three to six months' worth of living expenses).
• Eliminate high-interest debt (e.g., credit cards, car loans, student loans).

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What to consider before choosing your CD deposit amount 

Below, the financial experts we interviewed outline three priorities to address before deciding how much to invest in a short-term or long-term CD.

Build your emergency fund first

Your emergency fund should be your top priority. 

"[Build one] that'll cover unforeseen costs for at least three to six months," says Teresa Greenip, certified financial planner and senior manager in wealth management at Aspiriant.

Sound emergency savings serve as the foundation for CD investing. Yoshida puts it plainly: "Those who aren't adequately saving for retirement or lack a [robust] emergency fund shouldn't invest in CDs." 

Once you've built that safety net, though, he says you can consider CDs for any amount that feels comfortable.

Consider your upcoming expenses and life circumstances

Conners advises keeping CD deposits modest if you have major expenses such as college tuition or medical bills. In these cases, you may need more liquid cash. 

Aside from current and upcoming expenses, age is another important consideration, experts say. CDs can be a safe tool for young people saving up to buy a home. And if you're retired, you may prefer putting more money into CDs to enjoy guaranteed returns.

Aspiriant's Greenip suggests looking closely at your regular income and spending patterns to find your "safe-to-lock" amount. 

"Think through what changes could impact your cash flow and what new needs could be on the horizon," she says. 

Banks and credit unions offer higher CD rates because they expect you to leave your money untouched; otherwise, you pay an early withdrawal penalty. So, you must be confident about your future expenses before deciding how much to commit.

Balance CDs with other savings tools

Your CD strategy should work alongside other savings tools, according to Conners. 

"Have a liquid money market account for accessible funds besides your CD," he says.

While CDs can be a good place for extra savings, you'll want to be certain you won't need the money before the maturity date. Greenip warns that early withdrawal penalties can be steep, sometimes even cutting into your principal.

For money you might need quickly, she recommends looking into alternatives such as high-yield savings accounts or as Conners suggests, money market funds. These options can offer similar great returns while keeping cash within reach.

The bottom line

Before making a CD deposit, review your complete financial picture. "If you have [any] debt with an interest rate higher than the rate you'll earn on the CD, it makes more sense to pay [that off first]," Greenip says.

Ready to open a CD account? Speak with your financial advisor about how it'll fit into your savings strategy first. Compare offers from several banks and read the fine print. Greenip emphasizes watching out for "teaser rates" that drop significantly after the CD matures and automatic rollovers that can trap your money at lower rates.