Certificates of deposit pay a fixed rate in exchange for leaving the money alone. Here is what that looks like in dollars, and when a CD makes sense compared with a savings account.
1. Interest on $10,000
Interest at maturity, before tax:
- 3.5% APY: about $173 after 6 months, $350 after 1 year, $1,087 after 3 years
- 4% APY: about $198 after 6 months, $400 after 1 year, $1,249 after 3 years
- 4.5% APY: about $223 after 6 months, $450 after 1 year, $1,412 after 3 years
2. The trade-off is access
Taking money out early usually costs a penalty, often several months of interest. Keep the emergency fund in an easy-access savings account and use CDs for money with a known date.
3. Match the term to the goal
A house deposit in 18 months, a car in 2 years, a tax bill next spring: pick a term that ends just before you need the money.
4. Consider a ladder
Split the money across several terms (for example 6, 12 and 18 months). Something matures regularly, and you can reinvest at the rate on offer at the time.
5. Check the insurance and the fine print
Look for deposit insurance, whether the CD renews automatically at maturity, and how long the grace period is.
Free tools
- CD calculator with a $10,000 table: https://smartbudgetsheets.surge.sh/calculators/cd-calculator/?utm_source=mataroa
- High-yield savings calculator: https://smartbudgetsheets.surge.sh/calculators/high-yield-savings-calculator/?utm_source=mataroa
- Savings Goals tracker with 12 goals (Payhip): https://payhip.com/b/ZbfXe?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Rates are examples; check current offers.