Why you should put $15,000 into a 2-year CD right now
One of the keys to good financial planning is making sure that any money you hold is working for you. After all, with inflation factored in, any money that isn't creating more money is losing value.
One way to ensure your money is working for you is to put some into a certificate of deposit (CD). A CD is an account offered by banks that you deposit money into for a certain time in exchange for interest. And, CD interest rates are high right now, so if you have $15,000 you want to move out of your checking account, this may be the perfect time to open a 2-year CD.
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Why you should put $15,000 into a 2-year CD right now
There are a few reasons why opening a 2-year CD right now — and putting $15,000 into it — makes a lot of sense. Here's what you need to know.
Rates are high right now – but that might not last
Finding a high interest rate can be the key to a successful savings strategy. The higher your interest rate, the more passive income you earn.
Depending on where you look, you could get a rate of 5.25% or higher on a 2-year CD, especially at online-only banks. Since online financial institutions do not have the same overhead costs as brick-and-mortar banks, they can typically offer higher rates to customers.
Rates are high right now because the Federal Reserve has repeatedly raised the federal funds rate over the past 18 months. The Fed's actions have largely been in an attempt to fight inflation — and, so far, it has worked. Inflation has fallen from more than 9% year-over-year in June 2022 to just over 3% in November 2023.
In turn, the Fed has paused interest rates for the last three consecutive meetings and indicated that rate cuts could be coming in 2024. If this happens, CD rates could also drop, so now is the time to lock in a high rate on a CD.
Open a CD and start earning interest today.
CD rates are locked
CD rates aren't variable; they're fixed. That means the interest rate you got when you opened the account will be what you earn for the entire CD term, no matter what happens with the overall rate environment. If you open a 2-year CD with an interest rate of 5.25% today, you'll receive that rate for the full two years, even if Fed actions lead your bank to make rate cuts.
The tradeoff is that you have to keep your money in the CD for the entire two-year term. There are typically early withdrawal penalties for taking money out of a CD early, so make sure you won't need to touch the $15,000 you plan to deposit before opening the account.
The risk is minimal
The returns on a CD won't make you rich, but you can earn a respectable amount of interest. For example, if you put $15,000 into a 2-year CD earning 5.25% interest right now, you'd earn $1,616.34 in interest by the end of the term.
Your principal is also safe in a CD. Even if your bank were to fail, the NCUA and the FDIC insure CDs for up to $250,000 per depositor, per account, so your money is protected.
The bottom line
A certificate of deposit is a safe and secure way to earn interest. And, putting $15,000 into a 2-year CD with a rate of 5.25% would net you more than $1,600 in interest by the end of the term, and you don't have to worry about losing your principal. Just make sure you can afford to leave the money in the account for the entire term, as you'll likely face early withdrawal penalties if you take it out early.
