A certificate of deposit (CD) is an option for savers looking to earn a fixed interest rate on their money. Unlike savings accounts, which often have variable rates, CDs offer a guaranteed interest rate that remains the same for the entire term of the CD. This can be an attractive option for those who can set aside money for a fixed period, ensuring they earn a predictable return. Current top CD rates offer up to 4.65% annual percentage yield (APY), which can lead to significant earnings depending on the amount deposited and the length of the term.
Potential Earnings on a $10,000 Deposit
The amount you can earn from a CD depends on the term length and the APY offered by the bank. If you deposit $10,000 into a CD today with the highest APYs available, here is an estimate of how much you could earn over different timeframes:
| Term | Top APY | Bank | Interest Earnings | CD Value at Maturity |
| 6 months | 4.65% | CommunityWide Federal Credit Union | $229.86 | $10,229.86 |
| 1 year | 4.45% | CommunityWide Federal Credit Union | $445.00 | $10,445.00 |
| 3 years | 4.15% | America First Credit Union | $1,297.38 | $11,297.38 |
| 5 years | 4.25% | America First Credit Union | $2,313.47 | $12,313.47 |
The national average for a one-year CD is 1.82% APY. If you were to deposit $10,000 into a one-year CD with this rate, the value at maturity would be $10,182. However, by opting for a CD offering a higher rate of 4.45%, your deposit would grow to $10,445 after one year.
CD Growth with Smaller Deposits
Not everyone has $10,000 to invest in a CD, but that doesn’t mean you can’t take advantage of the opportunity to earn a competitive interest rate. Many banks do not require a minimum deposit to lock in a high CD rate. Here’s a look at what you could earn with smaller deposits across different term lengths:
| Term | Top APY | $500 Deposit | $1,000 Deposit | $2,500 Deposit | $5,000 Deposit |
| 6 months | 4.65% | $11.49 | $22.99 | $57.46 | $114.93 |
| 1 year | 4.45% | $22.25 | $44.50 | $111.25 | $222.50 |
| 3 years | 4.15% | $64.87 | $129.74 | $324.35 | $648.69 |
| 5 years | 4.25% | $115.67 | $231.35 | $578.37 | $1,156.73 |
These amounts reflect the interest you could earn if you deposit a smaller sum into a CD with the top available rates. As you can see, the more you deposit, the more you will earn in interest, even if the initial deposit is not large.
Understanding How CD Interest Is Calculated
The interest you earn on a CD is compounded, meaning you receive interest not only on your initial deposit but also on the interest that has already been earned. The frequency at which interest is compounded varies by bank; some banks compound interest daily, while others may do so monthly, quarterly, or semi-annually. The more frequently interest is compounded, the more you can earn over time. Using a compound interest calculator can help you estimate how much your money could grow during the life of the CD. The U.S. Securities and Exchange Commission provides a useful calculator to help with these calculations.
Early Withdrawal Penalties
One of the key trade-offs with most CDs is the early withdrawal penalty. If you need to access your money before the CD matures, you will typically incur a penalty that can be equal to a certain amount of interest. These penalties can reduce the overall amount you earn from the CD, so it’s important to consider whether you can afford to lock your money away for the term of the CD. If you anticipate needing access to your money before the CD matures, a high-yield savings account may be a better option, as it offers greater liquidity.
Alternative Savings Options for Growing Your Money
If you are still building your savings and may need to access your funds more frequently, a high-yield savings account or a money market account may be a better choice. These accounts offer competitive interest rates, though they are usually variable, meaning they can rise or fall based on the economy or the bank’s discretion. However, experts expect savings rates to remain high in the near future, which could make high-yield savings accounts a viable option for savers who want to keep their money accessible.
For instance, contributing $100 a month to a savings account can add up to $1,200 over the course of a year, not including the interest earned. If you increase that contribution to $250 per month, you could save $3,000 in one year. This approach can help you build your savings gradually while still earning interest, and many online banks offer automated tools, such as round-ups and automatic transfers, to help you save without much effort.
Although savings accounts offer flexibility, they generally have lower interest rates than CDs. But for those who want access to their money in case of an emergency or who are still in the process of saving, they can offer a suitable option. Regardless of the route you choose, it’s important to develop a consistent saving habit and take advantage of the tools available to grow your money.
