Why you should put $15,000 into a 1-year CD now (2024)

FAQs

Why you should put $15,000 into a 1-year CD 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 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.

So, how much would a $15,000 CD make in a year? Here's what you can expect depending on the interest rate you lock in: At 6.00%: $900 (for a total of $15,900 after one year) At 5.75%: $$862.50 (for a total of $15,862.50 after one year)

A one-year CD typically offers a higher interest rate than shorter-term CDs, such as three-month CDs and six-month CDs. Offers higher interest rates than traditional savings accounts.

Jones adds that, within most two-year timeframes, CDs will also get you the highest fixed yield in most circ*mstances. "Plus, with the interest rate cut talk, if rates are lowered, you'll be glad to have locked in a higher rate," he says.

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.

Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.

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.

Finding reliable 6% CD rates

You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.

Can you lose money on a 1 year 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.

Income on short-term CDs—those with terms of 12 months or less—is taxed at maturity. Income from longer-term CDs is taxed as it accrues. Short-term CDs can be used to defer taxable income from one year to the next.

For some people, it can be worth putting money into a CD. If a person is seeking a riskless investment with a modest return, CDs are a good bet—you'll earn a higher rate than you would with a checking or savings account, but you'll have to commit your funds for a fixed period.

Paying an early withdrawal penalty could also make sense if your CD is earning considerably less than current interest rates. For example, if you have a long-term CD earning a 2% APY, and new CDs offer APYs in the 5% range, you should consider cashing out your long-term CD as it could mean earning 3% more on your cash.

Should you withdraw early from a CD to take advantage of higher rates? To decide if it's worthwhile, compare the early withdrawal penalty from your current CD. If the interest on the new CD for that timeframe is higher than the fees you'd pay, you're good to go.

One major drawback of a CD is that account holders can't easily access their money if an unanticipated need arises. They typically have to pay a penalty for early withdrawals, which can eat up interest and can even result in the loss of principal. “During times of uncertainty, liquidity is often paramount.

This CD will earn $108.33 on $500 over five years, which means your deposit will grow by 21.7%.

Unlike stocks or cryptocurrencies, which present a risk of loss, CDs are generally considered safe investment vehicles that do not lose money.

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.