The federal funds rate – the benchmark rate for consumer interest on debt and deposits – is currently paused at a 23-year high. The Federal Reserve increased this ate several times in response to high levels of inflation, which was posing a challenge for savers. After all, if your savings doesn’t earn a return that’s equal to or greater than the current inflation rate, it loses buying power. 

With the most recent inflation report showing prices growing at a rate of 3.1% annually, the 0.46% average return on traditional savings accounts simply isn’t enough to maintain your money’s value. 

However, in today’s high interest rate environment, a certificate of deposit (CD) is a compelling way to save. In fact, leading CDs don’t just keep up with inflation, they often beat it. It wouldn’t be difficult to find a 5-year CD that offers a 4.5% APY or better. But how much money can you make by depositing cash into a 5-year CD with a 4.5% annual return? That’s what we’ll calculate below. 

Compare today’s leading CD rates now. 

What will a 4.5% CD interest rate earn in 5 years?

The amount of money you can earn on a 4.5% CD interest rate in five years depends on the amount of money you deposit into your account. Here’s what you’ll earn with deposits of varying sizes:

• $1,000: You would earn $246.18 for a total of $1,246.18 after five years. 
• $2,500: You would earn $615.45 for a total of $3,115.45 after five years. 
• $5,000: You would earn $1,230.91 for a total of $6,230.91 after five years. 
• $7,500: You would earn $1,846.36 for a total of $9,346.36 after five years.
• $10,000: You would earn $2,461.82 for a total of $12,461.82 after five years.
• $15,000: You would earn $3,692.73 for a total of $18,692.73 after five years.
• $20,000: You would earn $4,923.64 for a total of $24,923.64 after five years.
• $25,000: You would earn $6,154.55 for a total of $31,154.55 after five years.

Open a CD now to start earning more interest. 

Why you should open a 5-year CD right now

There are a few reasons now may be a good time to open a 5-year CD, including: 

Interest rates are high, but they could fall soon

CD returns are high thanks to today’s high interest rate environment. But the interest rate environment is a cyclical one – meaning that there are high and low interest cycles. Moreover, there’s a strong argument that with inflation cooling, today’s high interest rate cycle may come to an end soon. In fact, some experts expect rates to fall within the next few months.

On the other hand, CD returns are fixed for the term of the account. So, when you open a 5-year CD now, you’ll be locking in today’s impressive returns for the next five years – even if the Federal Reserve does reduce its federal funds rate target ahead.  

CD rates are locked

There’s no questioning that the economic, market and geopolitical climates are somewhat turbulent at the moment and the rate climate will reflect that turbulence. Allocating a portion of your portfolio’s assets to a CD can help add stability to your returns as these accounts come with fixed, predictable returns. This will give you peace of mind knowing that your money is secure and growing despite what else may be going on in the larger rate environment.

CDs can help you achieve your savings goals

When you open a CD, you also typically agree to keep your money in the account for its entire term. In fact, if you access your money before your CD matures, you may have to give back some of the interest you’ve earned or pay other penalties. That can help you achieve your savings goals. 

For example, if you plan on putting a down payment on a new home in five years, you could open a five-year CD now with the money you’ve saved so far. In doing so, you’ll be less likely to tap into this portion of your savings for the next five years since you’ll lose money if you do – potentially helping you meet your down payment goal. 

The bottom line

You could earn significant interest by depositing some of your money into a 5-year CD with a 4.5% interest rate now. By acting now you’ll get ahead of potential interest rate cuts to come later in 2024 and you’ll lock in a high return in the face of an evolving rate climate. And, with the prospect of early withdrawal penalties high, you’ll likely be better incentivized to leave your money untouched for the full CD term. For all of these reasons, opening a 5-year CD with a 4.5% interest rate could make sense for you now.

Compare leading CD accounts now to start earning today.

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, three dogs and 6 ducks.