Maximize Your Earnings: The Potential of a $10K CD Over 10 Years with Today’s High Interest Rates
Investing money can be done in many ways, from low to high risk. If you prefer a low-risk, stable method to grow your interest, a certificate of deposit (CD) might be a good option for you. With a CD, you can essentially set it and forget it until it matures.
So, if you invest $10,000 today, what will you earn in 10 years? Before we get to that, let’s explore why you might want to invest in a CD in the first place.
**Why Choose a CD Over Other Investments**
CDs offer safety and predictability, which are great reasons to consider them, says finance expert Ant Tumi, founder of Loan For Success. CDs are low-risk investments, ideal for conservative investors who prioritize preserving their principal. Unlike stocks or mutual funds, CDs provide safe returns and are insured by the FDIC up to $250,000 per depositor, per insured bank. This means you rarely have to worry about losing your money with a CD.
**Guaranteed Interest Rates**
Another advantage is that once you lock in your rate, it’s guaranteed no matter what happens to interest rates in the market. This keeps your returns predictable and shields them from market volatility.
**Aligning with Financial Goals**
CDs have fixed terms, which can help you align them with your other financial goals, like saving for a major purchase or a child’s college fund. The fixed nature of CDs encourages disciplined saving, reducing the temptation to withdraw funds early.
**Consider Laddering Your Investments**
According to Ben McLaughlin, personal finance expert and president of Raisin, there’s a significant difference between the average and best rates for CDs. For example, as of June, the average rate for a 6-month CD is 2.51%, while some CDs offer rates as high as 5.4%. In this environment, shorter-term products often have higher returns than longer-term ones. McLaughlin suggests “laddering” your funds by putting some money in shorter-term products with higher returns and some in longer-term products with slightly lower but guaranteed rates. It’s crucial to do your research to ensure you’re getting the best rate and understand all the fine print.
**Emergency Fund Priority**
A CD is a great choice for money you don’t need immediate access to, provided you have a healthy emergency fund—ideally six months’ worth of expenses—in a high-yield savings account. CDs are especially useful for locking in great rates, particularly as rates are expected to cool in the fall. The amount you should invest in a CD depends on your personal situation and should be funds you don’t need for daily living or unexpected emergencies.
**Potential Earnings**
If you invest $10,000 in a 10-year CD at an average rate of 4% with monthly compounding interest, you could earn between $4,500 and $4,900 over 10 years. While this might not seem like a huge amount, consider the benefits of security and stability, without the worry of a market correction wiping out your gains.