Certificates of Deposit (2024)

FAQs

How much does a $10,000 CD make in a year? ›

The national average APY for a one-year CD is 1.74 percent, based on Bankrate research, which shows this average has increased or remained the same since March 2022. If you deposited $10,000 into a one-year CD that pays this national average rate of 1.74 percent, in one year it would be worth a total of around $10,174.

Along with savings accounts and money market accounts, CDs are some of the safest places to keep your money. That's because money held in a CD is insured. So long as you purchase your CD account through an FDIC-insured bank, you're covered in case the bank shuts down or goes out of business.

Certificates of deposit (CDs) work differently from other bank and credit union accounts. They pay higher interest rates but also lock your money in for whatever term (or length) you've agreed to. CDs can be a safe place to put money aside until you need it while earning some interest in the meantime.

This CD will earn $120.39 on $500 over five years, which means your deposit will grow by 24.6%.

Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity.

The biggest disadvantage of investing in CDs is that, unlike a traditional savings account, CDs aren't flexible. Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded.

CD interest is subject to ordinary income tax, like other money that you earn. The IRS requires investors to pay taxes on CD interest income. The bank or financial institution that holds the CD is required to send you a Form 1099-INT by January 31.

That said, here's how much you could expect to make by depositing $20,000 into a one-year CD now, broken down by four readily available interest rates (interest compounding annually): At 6.00%: $1,200 (for a total of $21,200 after one year) At 5.75%: $1,150 (for a total of $21,150 after one year)

Don't put cash into a CD that you'll need for emergencies. Many CDs have a minimum deposit amount, usually around $500. Don't put more in a CD than you feel comfortable parting with.

How much interest would you make on a $5,000 CD? We estimate that a $5,000 CD deposit can make roughly $25 to $275 in interest after one year. In comparison, a $10,000 CD deposit makes around $50 to $550 in interest after a year, depending on the bank.

Can you keep adding money to a CD? ›

With a traditional CD, you typically make a one-time opening deposit and leave it in the account until the end of the term. You can't continually add money to this type of CD. However, you can opt to open an add-on CD, which allows you to make additional deposits throughout the CD's lifetime.

The best 1-year CDs could earn $2,625 in interest on $50,000. The best 2- to 5-year CDs could earn between $2,250 and $2,375 in interest on $50,000 per year.

CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs. CDs offer less liquidity than savings accounts, money market accounts, or checking accounts.

Some CDs aren't FDIC-insured, so they are a greater risk. Also, there are opportunity costs if you lock up money in a CD and interest rates rise or inflation outpaces the CD's interest rate.

CDs are a safe investment that can net you a higher return than most savings and money market accounts. Since rates have increased over the past year, they're more appealing to some savers. But with some banks already dropping rates, it's best to lock in a rate soon.

Ramsey has referred to certificates of deposit as "nothing more than glorified savings accounts with slightly higher interest rates." Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money.