Certificates of deposit (cds)?
A certificate of deposit, or CD, is a type of savings account offered by banks and credit unions. You generally agree to keep your money in the CD without taking a withdrawal for a specified length of time. Withdrawing money early means paying a penalty fee to the bank.
| Top Nationwide Rate (APY) | Total Earnings | |
|---|---|---|
| 1 year | 6.18% | $ 618 |
| 18 months | 5.80% | $ 887 |
| 2 year | 5.60% | $ 1,151 |
| 3 year | 5.50% | $ 1,742 |
The cons of CDs
With a savings account, the money is easily accessible in case of a financial emergency or a change in spending priorities. With CDs, you typically can't withdraw the money whenever you want—at least not without paying a penalty.
- Elements Financial – 5.50% APY.
- ConnectOne Bank – 5.40% APY.
- Apple Federal Credit Union – 5.40% APY.
- Alliant Credit Union – 5.40% APY.
- Bask Bank – 5.40% APY.
- Live Oak Bank – 5.40% APY.
- Home Savings Bank – 5.40% APY.
- Marcus by Goldman Sachs – 5.40% APY.
Are CDs a good investment? The answer depends. CDs can be attractive for those willing to sacrifice returns for security, especially in higher interest rate environments. However, bonds and bond funds might be more suitable in lower interest rate environments.
The bottom line
If you put $10,000 in a 5-year CD right now, you could be looking at earnings of more than $2,000 when the CD matures. Ultimately, CDs can be part of a successful financial strategy, as long as you make the right choices and shop for the best available rate.
How much will you earn if you put $20,000 into a 1-year CD? You can currently get a rate of up to 5.67% on a 1-year certificate of deposit. If you were to put $20,000 into that account, you would earn $1,134 in interest in a year, for a total of $21,134.
Yes, CDs are generally still safe even if a stock market crash occurs. CDs are a type of bank account. Many accounts offer a set rate of return for a specific timeframe that won't fluctuate.
Are CDs Worth It in 2023? With the Federal Reserve having raised rates, savers can finally make money with CDs. However, be mindful that there is risk in 2023 in buying CDs, as the Federal Reserve may be poised to lower rates in the future (even a few years out).
Pros. Offers higher interest rates than some other CD terms. A one-year CD typically offers a higher interest rate than shorter-term CDs, such as three-month CDs and six-month CDs. Offers higher interest rates than traditional savings accounts.
Where can I get 7% interest on my money?
Which banks offer 7% interest savings accounts? Only two financial institutions, Landmark Credit Union and Alpena Alcona Area Credit Union, currently offer 7% interest.
- Live Oak Bank — 5.40% APY, $2,500 minimum deposit.
- BrioDirect — 5.35% APY, $500 minimum deposit.
- Marcus by Goldman Sachs — 5.35% APY, $500 minimum deposit.
- First Internet Bank of Indiana — 5.35% APY, $1,000 minimum deposit.
- Popular Direct — 5.35% APY, $10,000 minimum deposit.
A 6-month CD may be a good idea if you'd like to earn a competitive interest rate on a short-term, fixed-interest savings account.
High-Dividend Stocks
Treasuries, CDs and most other conservative investments are often considered “safe” because they have little to no market risk. In other words, they don't generally trade down in value.
As part of a portfolio that includes cash, CDs can provide stability and security. However, CDs are unlikely to provide you with the returns you need to build wealth for the future or live off the interest — unless you already have a large amount of money and ladder your CDs to avoid penalties.
Interest Rate Risk
When rates are high, your CDs will generally yield a better return. But when rates are low, money held in CDs won't grow as much. CDs carry interest rate risk in that it's possible to lock in savings at one rate, only to see rates climb.
You can defer current taxes on CD earnings if you hold that CD in a traditional IRA or similar retirement account. Income and gains received on investments in traditional IRAs are not subject to tax until the IRA makes income distributions to the owner or—if the owner is deceased—to the owner's beneficiary.
Consider also the rate of inflation; over 10 years, inflation could outpace the fixed return you'd be earning with a 10-year CD. It may make more sense to put your money in a shorter-term CD, like a five-year CD, that likely offers a higher guaranteed APY than a 10-year CD and then reevaluate again in five years.
Depending on the bank, a $5,000 CD deposit will make around $25 to $275 in interest after one year. Online banks and credit unions pay appealing CD rates, and you can earn more interest than at big brick-and-mortar banks. When choosing a CD, consider other factors beyond the interest rate of an account.
However, federally insured banks and credit unions only insure up to $250,000 per depositor per account ownership category. If you put more than this amount in a single CD, some of your money will be at risk. You can still safely invest more than $250,000 in CDs by opening accounts at multiple financial institutions.
What is a jumbo CD?
Jumbo CDs work the same way as regular CDs but with larger minimum deposit amounts. Jumbo CDs are often purchased by institutional investors with large sums of money to manage and need to put money into safe investments like CDs to protect their investors against risks.
According to the FDIC, the average rate for a 12-month CD is 1.85% as of December 2023. So, yes, 6% CD rates are excellent. If you can get reliable 6% CD rates over a long period, then you should lock the rate in as long as possible.
Unlike the stock market or IRAs which can lose money, you cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity. In this case, the early-withdrawal penalty could eat up some or all of the interest earned.
Where to put money during a recession. Putting money in savings accounts, money market accounts, and CDs keeps your money safe in an FDIC-insured bank account (or NCUA-insured credit union account). Alternatively, invest in the stock market with a broker.
Cash. Cash is an important asset when it comes to a recession. After all, if you do end up in a situation where you need to pull from your assets, it helps to have a dedicated emergency fund to fall back on, especially if you experience a layoff.
