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While it can be tempting to deposit as much money as you possibly can into a high-rate certificate of deposit (CD) account now, the reality is that you likely need to maintain access to your money. And, with a CD account, you won’t be able to. The high, fixed interest rates that CDs come with require savers to sacrifice access to their funds for three months or longer to earn that rate. In today’s volatile economic climate, in which inflation is rising and wages are softening, however, this is a difficult balancing act for savers. But it doesn’t have to be.
With a $1,000 deposit, for example, savers can still earn a rate of 4% or higher on their money while still leaving the balance of their funds available as needed in an alternative account. But does the interest earnings on a $1,000 CD actually justify sacrificing that accessibility, or are savers with this much to deposit better served by exploring other options? To better understand the value of an account of this size now, it helps to start with the interest-earning potential that accompanies it.
Below, we’ll do the math that savers need to know in advance.
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How much interest can a $1,000 CD account earn now?
A $1,000 CD account won’t make you rich, no matter the termbut it can turn you a profit that you can comfortably rely on thanks to the account’s fixed rate. Here’s how much you’d earn now, calculated against a series of available rates and terms and the assumption that no early withdrawal fees are issued against the account:
- $1,000 3-month CD at 3.90%: $9.61 upon maturity
- $1,000 6-month CD at 4.10%: $20.29 upon maturity
- $1,000 9-month CD at 4.00%: $29.85 upon maturity
- $1,000 1-year CD at 4.11%: $41.10 upon maturity
- $1,000 18-month CD at 4.15%: $62.80 upon maturity
- $1,000 2-year CD at 4.16%: $84.93 upon maturity
- $1,000 3-year CD at 4.15%: $129.74 upon maturity
- $1,000 5-year CD at 4.20%: $228.40 upon maturity
Savers can earn around $10 with a $1,000 CD account after three months or around $230 if they leave the money in the account for the next five years. While these returns may not be exorbitant, they will be guaranteed for savers in a way they won’t be with other account types. And if you take the time to shop around for CD accounts, you may be able to find a rate slightly higher than those outlined above. With online marketplaces making it easier than ever to compare rates, terms and lenders in one location, you can start this process right now.
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Is a $1,000 CD worth opening now?
With the returns outlined above being minimal for a $1,000 CD account, regardless of the term, savers may be wondering whether it’s even worth opening now. For many savers, it may not be, but for select others, it will. The answer to this question will come down to your individual saver profile, goals and needs.
If you’re simply looking for a way to protect your money, either for a few months or a few years, while earning a guaranteed return in the interim, it can be. But if you’re looking to boost your interest earnings as much as possible, you will either have to deposit more money now or open a high-yield savings or money market account that will allow you to make multiple deposits indefinitely. You may also want to consider investing it in stocks, which have historically resulted in returns multiple times higher than the highest rate CD outlined above.
The bottom line
A $1,000 CD account will result in a return under $100 for savers unless they’re willing to keep the account for three years or longer. While that may be worthwhile for some, thanks to the fixed-rate protection the account offers, others may be better served by reviewing alternate account types or by investing instead. While $1,000 may not be an exorbitant amount of money, it should still be leveraged strategically by savers, especially in today’s economy.