High interest rates aren’t usually seen as a good thing. But they don’t only lead to negatives like higher grocery prices. They also mean higher savings rates if you have an interest-bearing savings product.
One such product, a certificate of deposit (CD), is especially valuable in a high-interest-rate environment. Unlike high-yield savings accounts, whose interest rates fluctuate based on the federal funds rate, CDs have a fixed rate. This rate is locked in when you open the CD, so opening one now means you’ll enjoy a high interest rate even if inflation cools.
If you’re considering getting a CD, it’s important to know how it works and how much you stand to earn with one. In this article, we’ll explore what your earnings might look like based on different factors.
Explore your CD options now to see how much more you could be earning.
How much can you earn with a CD?
How much you earn from a CD depends on the bank (or credit union) your account is with, how much you put into the CD and the term you select. The more you deposit and the longer the term, the more interest you’ll generally earn.
Average CD interest rates currently range from 4% to 5% (or higher), depending on the bank. This is slightly better than high-yield savings account rates (currently around 3.5% to 4.5%) and significantly better than regular savings account rates (currently around 0.23%).
It’s also important to keep your funds in a CD until the term expires. If you withdraw any before that time, you’ll not only reduce your CD balance (and the amount of interest you’ll earn on it), but you’ll also pay a withdrawal penalty. CD terms typically range from three months to five years.
Check today’s CD rates to see what you could be earning.
CD earnings examples
To give you an idea of your potential CD earnings, consider these examples, calculated at an interest rate of 4.5%:
$500 CD:
- Six-month term: $511.13
- One-year term: $522.50
- Five-year term: $623.09
$1,000 CD:
- Six-month term: $1,022.25
- One-year term: $1,045.00
- Five-year term: $1,246.18
$5,000 CD:
- Six-month term: $5,111.26
- One-year term: $5,225.00
- Five-year term: $6,230.91
Start shopping for a CD by viewing current rates here.
The bottom line
With interest rates high, now is a great time to open a CD. Since CD rates are locked in when the account is opened, your CD’s rate won’t go down no matter what the Fed does with interest rates.
To get the best CD rate possible, take the time to shop around, compare different banks’ offerings and calculate how much you can earn from different term lengths. Bear in mind that it’s wise to split your savings between a CD and a high-yield savings account so you have some liquid funds available for an emergency.
