Why you should put $10,000 into a short-term CD right away (2024)

FAQs

Why you should put $10,000 into a short-term CD right away? ›

It's safe and secure, plus the interest rates are generally higher than you'll get with other savings products. CDs can offer these higher rates because the saver agrees to keep the money in the bank for a predetermined period, generally between three months and five years.

The top nationwide rate in each CD term—from 6 months to 5 years—currently ranges from 5.20% to 6.18% APY. With a $10,000 investment in a top-paying CD, you can earn hundreds to thousands of dollars of interest on your money—and much more than if you keep it in a typical savings account.

"You don't want to use short-term CD's if you're investing for a goal that is longer than three years out unless you are incredibly risk-averse," Maula says. For long-term goals, you'll want a long-term CD, which would allow you to lock in today's interest rates for five or even 10 years.

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.

Penalties: One of the main drawbacks of CDs is that in most cases you're locked into the maturity term. If you take money from the CD before it matures, you will get hit with a penalty fee equal to at least seven days of the interest earned or even more.

The average money market rate is less than 1 percent. But let's say you put $10,000 in an account that earns a full 1% APY. After a year, your balance would earn 100 bucks. Put that same amount in a money market account with a 4% APY, and it would gain just over $400.

Yes, a three-month CD can be worth it if you're looking for a safe, FDIC-insured account that earns guaranteed interest on money you'd otherwise leave untouched in a checking or savings account.

The risk of having a CD is very low. Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity.

If the CD is placed in a tax-deferred 401(k) or individual retirement account (IRA), any interest earned on the CD may be exempt from paying taxes in the year it was earned. 2 Instead, you will pay taxes on that money when it is withdrawn from the 401(k) or IRA after you retire.

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.

Why should you put $5000 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 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.

Simple Interest Examples

You want to know your total interest payment for the entire loan. To start, you'd multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500.

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.

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.

Savings accounts give you more flexibility to make withdrawals, but CDs offer fixed interest rates that can boost some savings if you're able to leave your money alone for a set time. The best place to deposit your cash generally depends on how long you're willing to leave it in your account.

But sometimes breaking this rule pays off. Getting a CD when rates are low and breaking it when rates are high might be an opportunity to benefit from a higher-rate CD and earn you more than you would gain otherwise. A savings account is a place where you can store money securely while earning interest.