Should I deposit $5,000 into a CD?
With the Federal Reserve still attempting to rein in inflation with higher interest rates, the cost of borrowing for millions of Americans has gone up significantly. With credit cards and personal loan interest rates exponentially higher than they had been, and mortgage rates the highest they've been in decades, there are few attractive resources available now.
Fortunately, the interest rates on some well-known savings vehicles have also increased. Rates on certificates of deposit (CD) and high-yield savings accounts are in the 4.5% to 5% range or higher. Compared to the minimal 0.43% associated with most regular savings accounts, savers are losing money by not depositing some (or all) of their funds into one or more of these accounts.
For those with a few thousand dollars in the bank now, it may make sense to deposit it into a CD. There are multiple benefits to depositing $5,000 into a CD now, but they're not likely to stay that way long-term.
Start by exploring CD interest rates here to see how much more interest you could be earning.
Should I deposit $5,000 into a CD?
There are multiple compelling reasons to deposit $5,000 into a CD. Here are three to know now.
Higher interest rates
As noted above, CDs are currently offering much higher interest rates than they were just a few years ago. In fact, they're one of the top options available now, as they tend to have slightly higher rates than high-yield savings accounts. It's possible to find an account with rates of 5% or higher — with no fees — just by shopping around for lenders. While you may be able to secure a good rate with a bank with a physical location, you'll most likely earn the most interest by using an online bank or lender.
How much interest will you earn? Using the 5% interest rate as a barometer, savers who deposit $5,000 into a CD could grow their bottom line by $250 over 12 months. That's $250 made by simply transferring some funds from one account type to another. Get started here today!
Security
Not only are CDs safe and insured by up to $250,000 per account and lender, but they're also a reliably secure way to grow your money. That's because the interest rate obtained when opening a CD account will remain the same throughout the full CD term. So, if you open a 12-month CD at the prevailing interest rate of 5% — and that rate drops to 3% mid-way through your term — you'll still earn interest at the initial rate until the CD expires. This is particularly attractive now, when predictions for the larger rate environment are scattered.
But that's not the only way a CD provides security. Because you'll get penalized for withdrawing the money early (usually equivalent to some or all of the interest earned to date), a CD will deter you from using the money for impulse purchases as well. This added level of security can be especially helpful for those struggling to save money in today's inflationary economy.
Predictability
It's difficult to accurately budget when the purchasing power of the dollar is low and interest rates are high. But CDs still allow savers the opportunity to do so. You'll know exactly what your CD will be worth when it expires, allowing you to better prepare for that eventuality. This is particularly helpful for those considering a CD as a way to build an emergency fund. Deposit $5,000 now and get $5,250 — or more, if you can open an account with a higher interest rate than 5%.
You can check today's high CD interest rates here to learn more.
The bottom line
Now is an especially good time to open a CD, whether you're looking to deposit $5,000, $1,000 or some other figure. The more you deposit — and the higher rate you deposit it with — the more you'll earn long-term. But CDs aren't just beneficial for their better interest rates. They also provide security and predictability for savers, two features that are largely unavailable in today's uneven economy.
