Image source: Getty Images
Today, investors have an unprecedented opportunity to buy certificates of deposit (CDs) paying very competitive rates. In fact, there are dozens of CDs available that offer yields above 5.00%. But are they worth investing in? Just how much money can you make if you purchase a CD?
Let’s take a look at what your investment could turn into if you have $2,500 to put into a certificate of deposit.
When you have $2,500 to invest in a CD, you’ll have your pick of options, since that’s the minimum investment required with many different banks. (Some banks have lower minimums or no minimums at all, and others have higher ones.)
The amount of money that you can make is going to depend on what CD term you choose and which bank you invest with. Let’s take a look at what you could earn if you opened a 6-month, 1-year, and 5-year CD based on The Ascent’s list of the highest CD rates available as of April 29, 2024.
As you can see, the longer you leave your money invested, the more you can earn. That’s because you’re being paid interest for a longer period.
You may also notice that the yields on short-term CDs are actually higher than the rates 5-year CDs are paying right now. This is unusual, since CDs with longer terms generally offer higher rates to convince investors to lock up their money for years. Current economic uncertainty and the Federal Reserve’s stated desire to lower interest rates is the reason for this phenomenon (which is called an inverted yield curve).
The high rates on short-term CDs present a major opportunity right now. You can invest without making a long-term commitment and still earn a substantial amount of interest in a short period.
Since CDs are FDIC-insured, you can’t typically lose money on them (unless you have to withdraw your money so early that your penalty exceeds the interest you’ve earned to date). And the rates they’re offering are some of the most competitive we’ve seen in years. Being able to earn $527.04 on your investment without really taking any chance of loss is a pretty nice opportunity.
But that doesn’t mean CD investing is right for everyone. The rates you can earn are still below the 10% average annual returns you could make on an S&P 500 index fund. As a result, your money still belongs in a brokerage account if you won’t need it for around five years or more. That should give you a long enough timeline that investing in the S&P 500 presents a pretty small risk of loss. And you do have to give up liquidity to invest in a CD, so money you may need really soon (or at any time, like your emergency fund) doesn’t belong in one either.
If you happen to have $2,500 available that you can tie up for a few months to five years, but not for much longer, you should absolutely think about opening a CD today. Check out the best CD rates on The Ascent’s list and get your money invested now, before today’s competitive rates disappear for good.
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
—
Blog powered by G6
Disclaimer! A guest author has made this post. G6 has not checked the post. its content and attachments and under no circumstances will G6 be held responsible or liable in any way for any claims, damages, losses, expenses, costs or liabilities whatsoever (including, without limitation, any direct or indirect damages for loss of profits, business interruption or loss of information) resulting or arising directly or indirectly from your use of or inability to use this website or any websites linked to it, or from your reliance on the information and material on this website, even if the G6 has been advised of the possibility of such damages in advance.
For any inquiries, please contact [email protected]
