Is $10,000 too much to put into a CD with an interest rate less than 5%?
Not long ago, the interest rate on CDs was 5%. And many people rushed to open when they could.
However, CD interest rates have continued to decline since the Federal Reserve cut its benchmark interest rate in mid-September. The same goes for savings account interest rates. And you can still find CDs in the 4% range, but good luck finding that magical 5%.
Now that prices are low, you may be wondering whether $10,000 is too much to put on a CD. The answer depends.
Focus on the deposit, not the interest rate
CDs may no longer pay 5% interest, but today’s rates are close enough. And if you shop for CDs, you may be able to find a price you’re happy with. Click here for a roundup of today’s best CD rates..
Recommended Best High-Yield Savings Accounts for 2024
Capital One 360 performance savings  APY 4.00%
Fee information See the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates may change at any time before or after account opening. Member FDIC.
| APY 4.00%
Fee information See the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates may change at any time before or after account opening. | earn the least $0 |
CIT Platinum Savings  APY 4.70% APY on balances over $5,000
Fee information 4.70% APY on balances over $5,000; Otherwise 0.25% APY earn the least $100 when opening an account, up to $5,000 APY FDIC member.
| APY 4.70% APY on balances over $5,000
Fee information 4.70% APY on balances over $5,000; Otherwise 0.25% APY | earn the least $100 when opening an account, up to $5,000 APY |
Western Alliance Bank High Yield Savings Premier  APY 4.81%
Fee information Annual Percentage Yield (APY) is accurate as of October 21, 2024 and is subject to change at the Bank’s discretion. Please refer to the product website for the most up-to-date APY rates. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. earn the least $500 to open, up to $0.01 APY FDIC member.
| APY 4.81%
Fee information Annual Percentage Yield (APY) is accurate as of October 21, 2024 and is subject to change at the Bank’s discretion. Please refer to the product website for the most up-to-date APY rates. The minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. | earn the least $500 to open, up to $0.01 APY |
For this reason, the question you need to ask yourself is not whether it makes sense to open a $10,000 CD now when rates are slightly lower than 5%. Rather, we should ask whether it makes sense to open a $10,000 CD. any.
When opening a CD costs money
Opening a CD is a good idea when setting aside money for short-term goals. If you allocate that money to buying a new car in two years or a new home in four years, a CD is a good idea. However, if it’s money you don’t plan on using for more than about seven years, it’s generally better to invest it than just investing in CDs.
The risk of investing money is that the value of the asset may fall. However, investing over the long term lowers your risk, which can help you weather market downturns.
That’s why you shouldn’t invest money that you might need within 5 years. That’s not necessarily enough time to recover from a stock market decline. However, if you have a slightly longer time horizon to work with, stocks may be a more appropriate investment. And the more years you have, the better, not only for limiting risk, but also for growing your money.
Stocks can deliver stronger long-term returns.
Over the past 50 years, the S&P 500 has returned an average of 10% per year. It explains the strong and weak years. Over the long term, you won’t earn even 4% per year on CDs. But for the sake of illustration, let’s assume we do that.
If you invest $10,000 in a stock portfolio with a 10% return, after 20 years you will have $67,275. If you put $10,000 in a CD with a 4% return, after 20 years you would have just under $22,000. Which do you think is better? If it’s the first result, Click here for a list of the best brokerage accounts so you can start investing right away..
MAKE THE RIGHT CHOICE
There’s nothing wrong with investing $10,000 in CDs if CDs are a better choice for your money than stocks. However, if stocks are a better choice given your savings schedule and goals, put that $10,000 in a brokerage account. That way, you might end up making more money.
