Here’s How Much You’ll Earn in a Year If you Invest $10,000 in a CD Now

After 11 interest rate hikes between early 2022 and mid-2023, the Federal Reserve lowered the interest rate earlier this fall.

The Federal Funds Target Rate spiked from a meager .25% in 2020-22 to 5.5%, and it remained there for more than a year until it was lowered by 0.5% in September 2024. Those high interest rates have made it more difficult to manage credit card debt and take on new mortgages, but they’ve been great news for savers because higher interest rates mean higher yields on savings products such as certificates of deposit.

It’s a wonderful time for savers to invest in CDs, said Tom Traficanti, president of Heritage Bank of Nevada.

“For the first time in probably two decades, savers have been able to get a return on their money through certificates of deposit. They’re one of the best opportunities for savers, and right now, you can lock in those higher interest rates.”

With the Fed signaling that it may cut interest rates again later this year, now is the time to purchase a CD to maximize your money’s earning potential while interest rates are still at more favorable highs.

How Do Certificates of Deposit Work?

Certificates of deposit are a common savings product offered by national and regional banks and online financial institutions. Credit unions also offer CDs, but they are known as share certificates.

Since CDs are federally insured (up to $250,000, or $500,000 if purchased jointly by two adults), they are considered a nearly risk-free investment. They are popular with savers because they deliver fixed returns over a predetermined period, such as 30, 60, or 90 days, although other common terms include 12, 24, 48, and 60 months.

When you buy a CD, you agree to make a deposit for a fixed term or length of time. The end of the term is called the maturity date, and once your CD reaches maturity, you can choose to roll the funds and interest earned into another CD or take the proceeds and walk.

Your financial institution will alert you when the CD is nearing its term so you can make the best decision that matches your financial goals. However, if you don’t respond, those funds will automatically renew into a new CD with the same term, but you may get a lower interest rate — especially if the Federal Reserve cuts interest rates again before the end of 2024, as expected.

Which Banks Have the Best CD Rates?

Hundreds of banks offer CDs, and there’s fierce competition among them to offer the best rates. We’ve compiled a list of some of the best CD accounts to help you find the ones that best fit your financial goals.

Current CD Rates

Interest rates for certificates of deposit vary among financial institutions. Online banks tend to offer the most competitive interest rates for two reasons: They have less overhead than traditional brick-and-mortar banks and can offer these rates as an incentive to attract new customers.

Compare the Federal Deposit Insurance Corporation national rates for different-term CDs in August and then in October after rates were lowered:

It may seem counterintuitive that interest rates fall the longer you agree to keep your money in a CD, but that’s because you are locking in today’s higher interest rates for a longer period of time.

If rates do fall, especially over the long term, you are still guaranteed these higher interest rates, which means a higher yield. Of course, if rates were to rise, you’d be locked in at a lower rate, though that’s not the currently expected outlook.

It’s also worth noting that even before the latest rate cut, interest rates on CDs were roughly 20 basis points lower across the board than they were at the start of the year. That’s because banking experts expected the members of the Federal Reserve Open Market Committee to initiate an interest-rate cut later this year, which it did, so they responded proactively by modestly dropping interest rates across all their savings products.

“One reason why you can get a higher rate on a shorter-term CD than you can on a longer-term CD is because the banks are looking at that same slope, or the idea that we believe rates are going to be lower. A one-year CD is going to have a lower interest rate right now in this environment than a six-month CD,” Heritage Bank’s Traficanti said.

How Much Interest Can You Earn in a Year with a $10,000 CD?

How much interest you earn over the course of a year by purchasing a $10,000 CD largely depends on where you choose to park your money.

Large national banks don’t offer the competitive standard interest rates as smaller regional or online banks, so buying a 12-month CD from the bank associated with a stagecoach or the one commonly referred to by its three-letter abbreviation likely won’t provide the same yield as a local credit union or online financial institution.

We’ve run the numbers for you using a variety of deposit amounts so you can see how hard your money is working across a range of CD terms. To simplify things, we’ve used the Treasury Yield interest rates from August 2024 (noted in the table above. Actual interest rates at your financial institution of choice will likely be different and may be lower if you wait until later this year to open a CD.

The amount of interest, or yield, you earn on a CD depends on a number of factors. These include:

• Deposit amount: This is the initial balance when you open a CD.
• Interest rate: This is the rate of interest the bank offers on your money.
• Compounding interest: Over time, you’ll earn interest on the higher overall balance, which increases as your initial deposit grows due to principal interest.

Since interest rates remain high — especially compared to the prepandemic years — savers should consider capitalizing on the extra earning potential their money will bring in today’s high-interest rate environment.

Don’t Wait: Invest in CDs While Interest Rates Remain High

A long-awaited shift in the financial markets is looming on the horizon, so you may not want to wait any longer to make a move that capitalizes on high CD interest interest rates.

The Federal Reserve is poised to cut interest rates by .25 percentage points at its final two meetings in 2024 (the 12-member Federal Open Market Committee meets eight times each year). The first cut this year occured during the FOMC meeting on September 17-18, with more cuts anticipated during the meetings on November 6-7 and December 17-18.

Sagging interest rates will reduce the amount of money you can potentially earn by opening a CD. For instance, putting $10,000 in a 12-month CD at 4.5% would result in a one-year gain of $450. However, if the interest rate was 3.5%, your gain would only be $350.

“Nobody can really predict where interest rates are going to go,” said Heritage Bank of Nevada’s Traficanti. “If interest rates do come down as predicted, then you’re locking in that rate by buying today, and you are not subject to a potentially lower interest rate six months from now.”

Traficanti suggests savers deploy a strategy known as CD laddering to maximize their earning potential while reducing illiquidity risk since you typically can’t withdraw funds from a CD without incurring a penalty.

With CD laddering, savers purchase multiple CDs with different term lengths, such as six, 12, and 24 months. Your CDs will have different maturity dates, which leverage the current high interest rate environment while still affording you the opportunity to reinvest funds in new CDs or different investments altogether should rates tumble.

“The best strategy is to ladder term CDs,” Traficanti said. “You’re not at risk of rates declining, which raises reinvestment risk if you have all your money coming at the same time when rates could be much lower in the future. You’ll want to have some money that’s available shorter-term, and laddering does that.”