Why you should deposit $10,000 in CD now?
The bottom line
Unlike traditional or high-yield savings accounts, which have variable APYs, most CDs lock your money into a fixed interest rate the day you open the account. That's why if you suspect that interest rates will soon drop, it can be a good idea to put money in a CD to preserve the high APY you would earn.
The rate environment is favorable
On a $10,000 deposit, that would equate to $500 after one year. That's a substantial amount of interest, and it dwarfs the minimal 0.46% that most savers are currently getting with their regular savings accounts.
With such high interest rates, the earnings on CDs are impressive. You'll earn $850.50 for a total of $15,850.50 after one year when you open a $15,000 1-year CD with Popular Direct when calculating the returns at current rates.
Why it's probably time to buy a CD. Rates will remain high for a bit longer, but it's unclear how long. The Fed has indicated that there will three rate cuts in 2024, which means it's unlikely that CD rates will continue to climb . Waiting to open a CD could mean missing out on some stellar rates.
Lock in that rate before interest rates fall
The main reason CDs are paying so generously right now is that the Federal Reserve has raised interest rates numerous times since early 2022 to cool inflation. Of course, an unwanted side effect of those rate hikes is higher borrowing rates for loans and credit cards.
While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.
| Top Nationwide Rate (APY) | Balance at Maturity | |
|---|---|---|
| 1 year | 6.18% | $ 10,618 |
| 18 months | 5.80% | $ 10,887 |
| 2 year | 5.60% | $ 11,151 |
| 3 year | 5.50% | $ 11,742 |
No financial institutions currently offer 7% interest savings accounts. But some smaller banks and regional credit unions are currently paying more than 6.00% APY on savings accounts and up to 9.00% APY on checking accounts, though these accounts have restrictions and requirements.
There's nothing wrong with keeping $10,000 in a savings account. But it might not earn you the highest yields. CDs and brokerage accounts could be better homes for your cash in some situations.
How high will CD rates go in 2024?
Key takeaways. The national average rate for one-year CD rates will be at 1.15 percent APY by the end of 2024, McBride forecasts, while predicting top-yielding one-year CDs to pay a significantly higher rate of 4.25 percent APY at that time.
A certificate of deposit (CD) is a product that offers an interest rate payment in exchange for the customer agreeing to leave the lump-sum investment with a bank for a specific period of time. Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money.
Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.
There's no getting around paying tax on the interest, unless the CD is purchased in a tax-advantaged account, such as an individual retirement account (IRA) or a 401(k) plan. In this case, the same rules of tax deferral that apply to an IRA are applied to the CD.
Can you get 6% on a CD? There are still 6.00% CDs out there, but they are getting harder to find. If you do find one, it will likely be a short-term CD and you'll probably have to join a credit union to get it.
The best high-yield savings accounts currently pay up to 5.50% APY—but banks can reduce their rate at any time, without warning. Today's best nationwide CDs with rate guarantees of 3 months to 3 years are paying top yields of 5.00% to 5.55% APY.
The national average CD rate on a 6-month term is 1.52% APY (Annual Percentage Yield), according to the FDIC. However, there are much higher interest rates on 6-month CDs right now. The best CD rate for a 6-month term is 5.55% APY available at Newtek Bank.
The decision to open a CD now or wait depends on many factors, including interest rates, when you'll need to access the funds and the state of your emergency fund. In general, when rates are high — as they are now — opening a CD allows you to maximize your earnings even if rates go down in the future.
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.
The bottom line. Overall, long-term CDs could be a good investment for those who want to lock in guaranteed returns at a relatively high rate in early 2024. But as the year progresses, if interest rates fall as expected, then long-term CDs could lose some of their appeal.
What is a good amount to put in a CD?
Minimum and maximum amounts for CD investments
You can expect a minimum CD opening deposit of at least $500 at most banks, though that could rise to $2,500 or more for certain accounts. For example, CIT's Jumbo CDs require a minimum balance of $100,000. CDs with higher minimums often pay higher APYs.
Having multiple CDs can be a great way to diversify your portfolio without sacrificing as much liquidity. Risk is low, and CDs provide steady returns. Just know that owning too many CDs could cut you off from other high-return investments. Investing is one part of the financial journey.
A CD may be the best option for some of your cash if you can afford to lose access to it for the duration of the term and if the CD's interest rate is competitive. CDs work best for specific, short-term savings goals, like down payments, vacations or weddings.
| BEST NATIONAL JUMBO CDs | ||
|---|---|---|
| Lafayette Federal Credit Union | 4.42% APY | $100,000 |
| State Department Federal Credit Union | 4.37% APY | $100,000 |
| EFCU Financial | 4.35% APY | $100,000 |
| Best non-Jumbo option: Credit Human | 4.60% APY | $500 |
| Best 1-Year CDs - Mature Early 2025 | APY | Term (months) |
|---|---|---|
| Financial Resources Federal Credit Union | 5.43% | 13 |
| Best 18-Month CDs - Mature Later 2025 | APY | Term (months) |
| XCEL Federal Credit Union | 5.45% | 18 |
| Fortera Credit Union | 5.35% | 18 |
