While there are certainly downsides to interest rates going up, one fantastic upside is that rates on CDs, or certificates of deposit, go way up. In fact, some of the best CDs are offering annual percentage yield (APYs) of more than 5%.
Some CDs have ridiculously high deposit minimums, but a $5,000 deposit will be enough for many highly competitive 6-month CDs. Here's what that could look like in terms of yield.
High-yield 6-month CDs
You won't find these kinds of rates from every bank, but the current top 6-month CDs are generally between 4.5% and 5.5%. (I haven't personally seen one over 6% yet. The current national rate cap is 7.21%.)
With $5,000 to deposit, here's how much you could earn:
| APY | 4.50% | 4.75% | 5% | 5.25% | 5.50% |
|---|
| End balance | $5,113.56 | $5,119.93 | $5,126.31 | $5,132.69 | $5,139.09 |
|---|
| Total interest | $113.56 | $119.93 | $126.31 | $132.69 | $139.09 |
|---|
Data source: Author's calculations
(I assumed that funds compounded monthly. A CD that compounds daily may earn a bit more, but it'll be less than $1.)
So, where do you find these impressive APYs? Well, if you don't mind the lack of branches, online banks often have great rates. If you prefer the in-person touch, check out your local credit union. (Some of the highest rates I've seen came from credit unions.)
You may also want to check for any promotional CDs. You may find promotional offers with odd terms -- literally; I've seen 7-month and 9-month promotional CDs -- with remarkably high rates, while those banks' regular 6-month CDs wallow points behind the competition.
Average 6-month CDs
According to FRED data, the average rate for a 6-month CD is just 1.49%. But we all know that "average" means there are lots of CDs with lower rates. (I've seen a few as low as 0.03%!)
How much are those low rates going to cost you? Here's the yield from a $5,000 6-month CD at a more "average" rate:
| APY | 0.03% | 0.50% | 1.00% | 1.49% | 2.50% |
|---|
| End balance | $5,007.50 | $5,012.51 | $5,025.05 | $5,037.37 | $5,062.83 |
|---|
| Total interest | $7.50 | $12.51 | $25.05 | $37.37 | $62.83 |
|---|
Data source: Author's calculations
I think the numbers speak for themselves on this one. A junky 0.03% interest rate from your big-name bank is going to earn you just $7.50 after six months. That's $106.06 less than you'd earn with a 4.5% APY.
If that doesn't make you pause, consider this: Given that inflation is currently 3.4%, you're actively losing value if your CD -- or savings account, or checking account -- earns anything less than 3.4%.
CDs vs. savings accounts
In general, CDs offer some of the highest APYs of any type of low-risk savings product. Provided you don't need access to the funds during the maturity period of the CD, they are a great place for your mid-term savings.
However, what if that savings is part (or all) of your emergency fund? It's really ill-advised to tie up that money for any period of time, even just six months.
Well, you may not have to worry about it. At this very moment, you can find high-yield savings accounts offering the same 5% APY as some of the best CDs. Even better, some banks offer new account bonuses for opening a new savings account and meeting certain deposit conditions.
In other words, you could earn a competitively high APY, not tie up your money, and earn a welcome bonus, all in one move. It's worth considering, in my opinion.
Whichever route you choose to go, just make sure you're not letting your funds lose value in a low-yield account. Your money should always be making you money.
FAQs
Why should you put $5000 in a 6 month CD now? ›
Higher interest rates
A $500 deposit into a CD with 5.5% APY would only grow to $527.50 over 12 months. But a $1,000 deposit would grow to $1,055, and a $5,000 deposit would increase to $5,275.00. That's almost $300 more earned simply by moving your money out of one account and into another.
What is considered a good 6 month CD rate right now? ›
Our picks for the banks with the best six-month CD rates are: Synchrony Bank (4.40% APY) Marcus by Goldman Sachs (4.75% APY) BMO Alto (4.80% APY)
How does a 6 month CD pay out? ›
How does CD interest work? CD interest works like it does in regular savings accounts. Interest gets compounded over time, meaning that the bank pays you interest on the initial deposit and the accrued interest that the CD earns.
What is the biggest negative of putting your money in a CD? ›
1. Early withdrawal penalty. 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.
How much is 5% interest on $5000? ›
Suppose you invest $5,000 in a five-year CD paying 5% per year, with no compounding, and you make no additional contributions along the way. You would earn $250 per year, and your $5,000 would become $6,250.
Are 6 month CDs worth it? ›
In the past two years, the interest rates on short-term investments such as 6-month CDs have been the highest in decades, even paying out more than longer terms. That means you can earn a high annual percentage yield (APY) on your money without having to lock up your savings for a long time.
Is it worth putting money in a CD right now? ›
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.
Should I leave my money in a CD? ›
CDs offer a guaranteed rate of return and an opportunity to boost your savings if you keep the account until it matures. Since it's difficult to predict what the interest rate environment will be in the future, you wouldn't want to put too much money in a long-term CD in case rates increase.
Do you pay taxes on CDs? ›
The taxes on CDs are similar to those on other types of interest income, such as interest earned on bonds. Both are considered taxable income and subject to federal income tax, which is based on your marginal tax bracket. However, there are some investments, such as stocks and mutual funds, which are taxed differently.
CDs shown below are from banks with the highest star ratings.
- Barclays. Our Score 4.3. APY 5.10% ...
- Quontic Bank. Our Score 4.5. APY 5.10% ...
- Ally Bank. Our Score 4.6. APY 4.90% ...
- BMO Alto. Our Score 4.3. ...
- Alliant Credit Union. Our Score 4.2. ...
- Alliant Credit Union. Our Score 4.2. ...
- BMO Alto. Our Score 4.3. ...
- Marcus by Goldman Sachs. Our Score 4.5.
Compare 6-month & short term deposits
| Bank | Term Deposit | Interest Rate |
|---|
| Qudos Bank | Qudos Bank Term Deposits ($5,000-$10,000) - 6 months | 4.85% p.a. |
| Bank First | Bank First Term Deposit - 6 months | 4.85% p.a. |
| IMB Bank | IMB Bank Term Deposit - 6 months | 4.75% p.a. |
| Bank of Sydney | Bank of Sydney Online Only Term Deposit - 6 months | 4.80% p.a. |
33 more rowsHowever, our opinions are our own. See how we rate banking products to write unbiased product reviews. Depending on the bank, a $5,000 CD deposit will make around $25 to $275 in interest after one year.
How much does a $10,000 CD make in 6 months? ›
Earnings on a $10,000 CD Over Different Terms
| Term Length | Average APY | Interest earned on $10,000 at maturity |
|---|
| 3 months | 1.65% | $41.31 |
| 6 months | 2.53% | $127.17 |
| 1 year | 2.57% | $260.05 |
| 18 months | 2.17% | $330.55 |
3 more rowsSep 3, 2024
Usually, long-term CDs pay higher interest rates than short-term ones. However, if you look at the best CD rates right now, you'll find 3-month, 6-month, and 1-year terms are actually more competitive than some longer-term CD rates.
How much does a $10,000 CD make in a year? ›
Earnings on a $10,000 CD Over Different Terms
| Term Length | Average APY | Interest earned on $10,000 at maturity |
|---|
| 6 months | 2.53% | $127.17 |
| 1 year | 2.57% | $260.05 |
| 18 months | 2.17% | $330.55 |
| 2 years | 2.09% | $426.48 |
3 more rowsSep 3, 2024
That said, here's how much you could expect to make by depositing $20,000 into a one-year CD now, broken down by four readily available interest rates (interest compounding annually): At 6.00%: $1,200 (for a total of $21,200 after one year) At 5.75%: $1,150 (for a total of $21,150 after one year)
How much does a $50,000 CD make in a year? ›
Earnings on a $50,000 CD over different terms
| CD term | Average APY | Interest earned on $50,000 at maturity |
|---|
| 3 months | 1.53% | $190.16 |
| 6 months | 1.82% | $452.95 |
| 1 year | 1.85% | $925.00 |
| 2 years | 1.58% | $1,592.48 |
4 more rowsThat's up to each issuer. In practice, however, most CDs compound either daily or monthly. The more frequent the compounding, the more interest your interest will earn. The frequency with which your CD compounds is reflected in the annual percentage yield (APY) that the CD's issuer promises you when you buy a CD.
