Why you should put $5,000 in a 6-month CD now (2024)

FAQs

Why you should put $5,000 in a 6-month CD now? ›

While longer-term CDs may tie up your funds for years, a 6-month CD allows you to access your money relatively quickly. If you suddenly need your $5,000 for an emergency or a more lucrative investment opportunity arises, you won't have to wait years to access your funds without incurring hefty penalties.

The bottom line

A $10,000 deposit into a 6-month CD is a smart and safe way to grow and protect your money right now. By doing so, you won't lock up your funds for an extended period but you'll still overcome some rate uncertainty during that period.

For reference, here's how much savers can currently expect to make with a $5,000 CD in six months, with three different interest rates: At 5.50%: $135.66 (for a total of $5,135.66 after six months) At 5.25%: $129.57 (for a total of $5,129.57 after six months)

One of the best parts of depositing your savings in a CD is that the rate is fixed, meaning that it will not change before the CD matures. So, if rates decline during your 5-year CD term, you'll continue to earn the same 4.75% interest rate you locked in when you opened the account.

If you don't need access to your money right away, a CD might be a good savings tool for you in 2024 while average interest rates remain high. CD interest rates are high in 2024 — higher nationally, on average, than they've been in more than a decade, according to Forbes Advisor.

Key takeaways. 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.

To turn $5,000 into more money, explore various investment avenues like the stock market, real estate or a high-yield savings account for lower-risk growth. Investing in a small business or startup could also provide significant returns if the business is successful.

How to avoid taxes on CD interest. One way to postpone being taxed on CDs is to put them in a tax-deferred individual retirement account (IRA) or 401(k). As long as money placed in a traditional IRA is below the annual contribution limit, interest you earn may be tax deductible.

Should I lock in a CD rate 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.

If you're in a position to save in today's higher interest rate environment, investments like CDs could help accelerate your savings. CD rates have skyrocketed since 2022: 1-year CD rates have increased more than twelve-fold, with 3-year and 5-year CDs up nearly six-fold and five-fold, respectively.

The biggest risk to CD accounts is usually an interest-rate risk, as federal rate cuts could lead banks to pay out less to savers. 7 Bank failure is also a risk, though this is a rarity.

While that amount will be different for everyone, you should keep a few things in mind. First, a minimum amount is usually required. Most CDs have a minimum deposit between $500 and $2,500, though some can be lower or higher than this range.

CD rates tend to lag behind rising inflation and drop more quickly than inflation on the way down. Because of that likelihood, investing in CDs carries the danger that your money will lose its purchasing power over time as your interest gains are overtaken by inflation.

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.

Here's how much money you can make by opening a 6-month CD with a 5.30% APY based on varying opening deposit amounts: $1,000 opening deposit: $26.16 (for a total balance of $1,026.16 after six months) $2,500 opening deposit: $65.39 (for a total balance of $2,565.39 after six months)

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.

That's up to each issuer. In practice, however, most CDs compound either daily or monthly. The more frequent the compounding, the more interest your interest will earn. The frequency with which your CD compounds is reflected in the annual percentage yield (APY) that the CD's issuer promises you when you buy a CD.

A certificate of deposit (CD) is a product that offers an interest rate payment in exchange for the customer agreeing to leave the lump-sum investment with a bank for a specific period of time. Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money.