Here's how much you could make if you put $20,000 into a 5-year CD right now (2024)

FAQs

Here's how much you could make if you put $20,000 into a 5-year CD right now? ›

So, no matter which 5-year CD you choose, you're going to earn between $4,000 and $4,700 on a $20,000 deposit at today's best rates. Keep in mind, you have to pay taxes on CD interest, so your total return could be less. Still, this is a decent return for a relatively risk-free investment.

CD returns are impressive

What does that mean if you deposit $20,000? Here's how much money you stand to earn: $20,000 at 4.5% APY: $4,923.64 in interest (for a total of $24,923.64 after five years) $20,000 at 4.55% APY: $4,983.32 in interest (for a total of $24,983.32 after five years)

APY = Annual Percentage Yield. APYs are subject to change at any time without notice. A $20,000 initial deposit in a CD could yield between $260 and $4,700, with longer terms paying out significantly more.

If you're in a position to save in today's higher interest rate environment, investments like CDs could help accelerate your savings. CD rates have skyrocketed since 2022: 1-year CD rates have increased more than twelve-fold, with 3-year and 5-year CDs up nearly six-fold and five-fold, respectively.

The important thing to notice is that your interest gets larger every year, since there is more money in your account over time. Thanks to today's elevated CD interest rates and the effects of compounding, our hypothetical 5-year CD earned $2,166.53 in the five-year period. Not bad for a risk-free investment.

The biggest risk to CD accounts is usually an interest-rate risk, as federal rate cuts could lead banks to pay out less to savers. 7 Bank failure is also a risk, though this is a rarity.

What is the highest paying 5-year CD? ›

Here's how much money you'll earn on a $5,000 5-year CD at each of these institutions: Bread Savings at 4.75%: $1,305.80 (for a total of $6,305.80 after five years) Popular Direct at 4.70%: $1,290.76 (for a total of $6,290.76 after five years)

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.

Traditionally, in your typical ladder, five-year CDs have a higher yield than one-year CDs. But these days, you're likely to see a CD with a term of around six months to 18 months will likely have the highest yield in your ladder.

A CD is a federally insured savings account for a term usually up to five years. To withdraw early, you usually pay a penalty. A bond is a loan to a company or the government for a term that can be as long as 30 years. Unlike most types of CDs, you must sell bonds if you need to access the money before maturity.

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.

Disadvantages of investing in CDs

The biggest disadvantage of investing in CDs is that, unlike a traditional savings account, CDs aren't flexible. Once you decide on the term of the CD, whether it's six months or 18 months, it can't be changed after the account is funded.

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.