What's the minimum you should deposit in a CD? Here's what experts say
Today's interest rates are elevated. But, if cooling inflation is any indication of what's next, we could see them start to fall later this year. And, if rates fall, returns on deposit accounts may fall, too.
That's why it's a good idea to open a certificate of deposit (CD) right now. With the threat of rate cuts ahead, it's smart to look for accounts that make it possible to preserve today's high returns. And, since CDs come with fixed rates for their entire term, they can do just that. Then again, you shouldn't put all of your savings into a CD. Since these accounts lack liquidity, it's best to maintain a separate account for your emergency savings so you have access to your money any time you might need it.
So, what's the minimum amount of money you should deposit into a CD right now? We asked multiple experts to weigh in.
See how much more you could be earning with a top CD now.
What's the minimum you should deposit in a CD?
The minimum amount for you to deposit into a CD is relative. Here's how the experts we spoke with say you should decide:
Consider the account's minimum deposit
"Banks may impose a minimum on a CD deposit," explains George Kao, CFP, founder and financial planner at Reach One Teach One Financial, a financial education and planning firm. "Typically, you'd see minimums of $100, $500, or $1,000."
So, you should check to see if there's a minimum deposit required to open the account you'd like. But, there may not always be one. "Some banks, including online-only banks, offer CDs without minimum deposits," says Kao. Those banks may be compelling options if you have a small amount of money to invest.
Find out how high your CD rate could be today.
Think about your current situation
Kao says you should determine "how much is right for you in your current situation." For example, say the minimum deposit requirement on an account you'd like to open is $500, but you have $10,000 that you can comfortably deposit. In this case, $10,000 may be the best amount of money to open your account with.
"How much you should deposit into the CD will depend on your goals for that money, how soon you'll potentially need it, the interest rate, and various other factors unique to each person," explains Tyler A. Gray, CFP, Managing Director at SageOak Financial, a financial planning firm. "Others may try to tell you a generic rule of thumb, but the hard part about a rule of thumb is that not everyone's thumb is the same size."
Base your deposit on your return requirements
Another way to decide the minimum amount of money you should deposit into a CD is to think about what you would like the end result of your investment to be.
"I would look at the after tax return with interest plus principal that you would like to have on the back end," explains Jim Crider, CFP, owner and financial planner at Intentional Living FP, a financial planning firm. "If you're on a CD issuing 5% and you put money into a 12-month CD, and you need - in that risk-free environment - $105,000, well you better put in at least $100,000."
Of course, the minimum amount you should deposit to reach your goal for the end result of your investment may vary based on your CD's term and APY. So, there may be multiple ways to produce the return you're looking for, whether you're looking to earn $500 with a CD, $1,000 or more.
Consider your emergency fund
"The more important question to address first is whether your emergency fund is fully funded," explains Nick Covyeau, CFP, owner and financial planner at Swell Financial, a financial planning firm. "Once you have finished funding your emergency fund, you can start investing in a CD with as little as $500 - $1,000."
"Our rule of thumb is that once you have three to six months of your expenses covered in your emergency fund, a CD is appropriate for any extra cash," says Jim White, CFP president at Great Oak Wealth Management, a financial planning firm. "It could be $25 or $50 - if the offered CD has a higher interest rate than your emergency fund interest rate, that's a win."
Think about the interest rate environment
"Another consideration is what you believe the future interest rate environment looks like," says Jim Eutsler, CMA, wealth advisor and partner at the financial services firm, HCM wealth advisors and CPAs. He says that you should consider larger CD investments when you think rates are going to drop.
Lock in today's high rates with a CD now - before they have a chance to fall.
The bottom line
There's no set minimum amount that you should use to open a CD. But you should open one as soon as possible. "Get started," says Noah Damsky, CFA, principal at Marina Wealth Advisors, a financial planning firm. "Don't worry if it doesn't feel like you're starting with much. If you have $100 to invest, then that's plenty to develop good habits by saving, investing, and securing your financial future." Compare today's leading CDs right now.
