How am I losing money on my CD?
The most common way people lose money through a CD account is by withdrawing their funds before the term ends. When you take money out of your CD account before the maturity date, you'll typically have to pay an early withdrawal penalty.
Inflation erodes the purchasing power of your money over time, and if your CD's interest rate isn't keeping up with inflation, you're essentially losing money. For example, if your CD earns a 2% annualized return but inflation is running at 3%, you're actually losing 1% of your purchasing power every year.
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.
Your savings should be easily accessible instead of in a CD, which can tie up your cash. Access to funds: Traditional CDs are not liquid investments, which means you'll incur penalties if you cash out early. Keep that in mind when deciding how much money to invest.
Like other bank accounts, CDs are federally insured at financial institutions that are members of a federal deposit insurance agency. If a member bank or credit union fails, you're guaranteed to receive your money back, up to $250,000, by the full faith and credit of the U.S. government.
The FDIC Covers CDs in the Event of Bank Failure
But the recent regional banking turmoil may have you concerned about your investment in case of a bank failure. CDs are treated by the FDIC like other bank accounts and will be insured up to $250,000 if the bank is a member of the agency.
Traditionally, in your typical ladder, five-year CDs have a higher yield than one-year CDs. But these days, you're likely to see a CD with a term of around six months to 18 months will likely have the highest yield in your ladder.
| Top Nationwide Rate (APY) | Balance at Maturity | |
|---|---|---|
| 6 months | 5.76% | $ 10,288 |
| 1 year | 6.18% | $ 10,618 |
| 18 months | 5.80% | $ 10,887 |
| 2 year | 5.60% | $ 11,151 |
Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.
Savings accounts give you more flexibility to make withdrawals, but CDs offer fixed interest rates that can boost some savings if you're able to leave your money alone for a set time. The best place to deposit your cash generally depends on how long you're willing to leave it in your account.
Why you should put $5,000 in a 6 month CD now?
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.
That all said, here's how much a $1,000 CD will make in a year, based on four possible interest rate scenarios: At 6.00%: $60 (for a total of $1,060 total after one year) At 5.75%: $57.50 (for a total of $1,057.50 total after one year)
The bottom line
If you put $20,000 into a 3-year CD, you could earn more than $3,000 in interest by the end of the term, depending on the interest rate you get. And, a CD is safe and secure thanks to the insurance it comes with.
Today's impressive CD rates are the result of the United States Federal Reserve increasing its federal funds rate in an attempt to combat inflation. As inflation slows, there's no telling how long these high rates will last. So, it's wise to lock in today's high rates by investing $15,000 into a 1-year CD now.
Know a CD's minimum
CDs have a typical minimum balance or opening requirement that's often around $1,000, but it can range from $0 to $10,000. There are jumbo CDs, which have minimums traditionally around $100,000, though these CDs don't necessarily have the best rates in the industry.
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.
CD drawbacks
There are a few key points to keep in mind before opening one. Lower returns: If you're looking for a way to build wealth, CDs may offer only limited benefits. You could get better returns for your money by putting it into the market and buying stocks, mutual funds, or other investments instead.
No investment is 100% safe from a default, not even certificates of deposit. Stay diversified and keep up with sound financial habits.
Banking regulation has changed over the last 100 years to provide more protection to consumers. You can keep money in a bank account during a recession and it will be safe through FDIC and NCUA deposit insurance. Up to $250,000 is secure in individual bank accounts and $500,000 is safe in joint bank accounts.
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.
How high will CD rates go in 2024?
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.
When Should You Get a 6-Month CD? CDs tend to offer higher yields than traditional savings and money market accounts, especially in a low-interest rate environment. A 6-month CD may be a good option if you know that you won't need access to your funds for at least six to nine months.
- Northern Bank Direct – 5.60% APY.
- Apple Federal Credit Union – 5.40% APY.
- Expedition Credit Union – 5.40% APY.
- NexBank – 5.40% APY.
- CIBC Agility – 5.36% APY.
- TotalDirectBank – 5.35% APY.
- CFG Bank – 5.31% APY.
- Rising Bank – 5.31% APY.
| Term | APY | Yield on $50,000 (per year) |
|---|---|---|
| 2 years | 4.50% | $2,250 |
| 3 years | 4.66% | $2,375 |
| 4 years | 4.45% | $2,225 |
| 5 years | 4.30% | $2,150 |
Treasury Bonds
Investors often gravitate toward Treasurys as a safe haven during recessions, as these are considered risk-free instruments.
References
- https://www.cbsnews.com/news/why-you-should-put-20000-into-a-3-year-cd-right-now/
- https://www.cbsnews.com/news/why-you-should-put-15000-into-a-1-year-cd-now/
- https://www.forbes.com/advisor/banking/pros-and-cons-of-using-a-certificate-of-deposit-cd-for-your-savings/
- https://www.cnbc.com/select/why-now-is-perfect-time-to-open-cd/
- https://www.cbsnews.com/news/how-much-does-1000-cd-make-in-a-year/
- https://www.fool.com/the-ascent/banks/articles/how-much-could-50000-earn-in-todays-top-paying-cds/
- https://www.investopedia.com/what-happens-to-your-cd-if-your-bank-fails-7511009
- https://www.bankrate.com/banking/cds/cd-rate-forecast/
- https://www.investopedia.com/best-1-year-cd-rates-4796650
- https://www.fool.com/the-ascent/buying-stocks/articles/will-you-lose-your-treasuries-if-the-us-defaults-on-its-debt-suze-orman-has-an-answer/
- https://www.sofi.com/learn/content/can-a-certificate-of-deposit-cd-lose-value/
- https://www.investopedia.com/pros-and-cons-of-cds-5223947
- https://www.businessinsider.com/personal-finance/how-much-will-5000-cd-make-in-a-year
- https://www.forbes.com/advisor/banking/cds/best-1-year-cd-rates/
- https://www.cnn.com/cnn-underscored/money/how-much-money-should-i-keep-in-a-cd
- https://www.nerdwallet.com/article/banking/how-much-should-i-put-into-cds
- https://www.nerdwallet.com/article/banking/faq-cd-or-highyield-savings
- https://www.investopedia.com/best-6-month-cd-rates-4783267
- https://www.bankrate.com/banking/cds/is-now-the-time-for-longer-term-cds/
- https://money.usnews.com/investing/articles/best-investments-during-a-recession
- https://www.nerdwallet.com/article/banking/are-cds-safe
- https://www.cbsnews.com/news/can-you-lose-money-in-a-cd/
- https://www.businessinsider.com/personal-finance/is-money-safe-in-bank-during-recession
- https://www.investopedia.com/what-can-i-earn-with-10k-in-a-cd-8400034
