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Is a $5,000 CD still worth opening now?
For the last two and a half years, approximately, the benefits of opening a certificate of deposit (CD) account have been clear. These accounts offered interest rates exponentially higher than they had been in 2020 and 2021, for example. The rates on these accounts were fixed, meaning that savers could rely on a predictable return despite any volatility in the wider rate climate during their CD term. Depending on the initial deposit, then, savers could earn hundreds or thousands of dollars in interest, simply by opening an account at the right time, with the right lender.
But is now still the right time to do so? Inflation has steadily dropped from the decades-high point it was at in June 2022. Multiple interest rate cuts have since been issued in response, the latest of which is widely expected for when the Federal Reserve meets for the final time in 2024 on December 17 and 18. Against this backdrop, then, savers may be pondering the benefits of opening a CD. While a $5,000 deposit, for example, may have been a clear choice a year or two ago, some may be wondering if a $5,000 CD is still worth opening now. Below, we’ll explain why it may still be.
See how much interest you could be earning with one of today’s top CDs here.
Is a $5,000 CD still worth opening now?
In simple terms: Yes, a $5,000 CD can still be worth opening for many savers right now. But the details matter. For example, a $5,000 deposit into a short-term CD may not be valuable for some savers. These accounts, which mature in under 12 months, have interest rates slightly higher than their long-term counterparts. But long-term CDs, which have terms ranging from 18 months to 10 years, will allow savers to lock in today’s high rates for years to come, making them a smart way to protect your savings against any future rate cuts.
To better understand why a $5,000 long-term CD would be better than a short-term one now, it helps to compare the returns each account can offer savers. It’s possible to find a 6-month CD with a rate of 4.50% now. 2-year CD rates, meanwhile, top out around 4.25%. But the lower rate won’t negate the higher earnings, thanks to the extended earning potential. A $5,000, 6-month CD would make $111.26 upon maturity while the 18-month CD would earn $434.03. That’s almost four times the interest, made with the same effort as it would take to open the shorter term.
The key consideration, then, becomes a personal one. Can you afford to keep your money untouched in a long-term CD? If you can’t and open one anyway you’ll be penalized for withdrawing your money early. That could mean forfeiting all of the interest earned to that point, depending on the individual lender’s fees. The same considerations apply to short-term CDs, too, although those accounts are typically easier for the average saver to see through to maturity. Only you will know which is best for your situation.
Start exploring your short-term and long-term CD options here.
What about high-yield savings accounts?
If you’re concerned about your ability to lock your money away, regardless of the term length, a high-yield savings account could be a valuable alternative to investigate. These accounts operate like traditional savings accounts do, albeit with much higher interest rates. The catch, here, is that rates are variable and likely to fluctuate and potentially decline as additional Fed rate cuts are issued. And the most attractive accounts are usually via online banks, so you may need to move your funds from your regular branch to take advantage of the higher rates offered elsewhere.
Learn more about your high-yield savings account options here.
The bottom line
Interest rates haven’t dropped so low that a $5,000 CD is no longer valuable. Savers will just need to be a bit more strategic in their approach than they have been in recent years. For many, that may mean opening a long-term CD versus a short-term one. Others, however, may be best served by forgoing their CD options for high-yield savings accounts. It’s critical to take action soon, however. Today’s interest rates won’t remain this high forever so it makes sense to start earning more on your money as soon as possible.
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