Calculating the Annual Earnings on a $10,000 Certificate of Deposit
### Current Interest Rates on CDs
CD interest rates have seen a significant rise over the past year, in line with the prime interest rate set by the U.S. Federal Reserve. As of March 2024, the national average interest rate for a 12-month CD is 1.81%, while a five-year CD averages at 1.38%, according to the Federal Deposit Insurance Corporation.
The rates for CDs depend on the term and the bank where you open your account. Interest rates can also vary based on the size of the CD, particularly for amounts over $100,000, known as jumbo CDs.
### Earnings on a $10,000 CD
The earnings on a $10,000 CD depend on the term and the interest rate at the time of opening the account. For example:
– At the national average rate of 1.81%, a one-year CD with a $10,000 deposit, compounded monthly, would grow to $10,182.51 by maturity.
– A five-year CD with a $10,000 deposit at an average rate of 1.38%, compounded monthly, would yield $713.94 after 60 months.
However, some banks and credit unions offer rates of 5% or more. A $10,000 CD at a 5% rate would earn $500 in a year. It’s beneficial to shop around for the best rates before opening a CD.
### Benefits of CDs
Opening a $10,000 CD is a smart way to save for significant expenses like a house, wedding, vacation, or a new car. CDs typically offer higher interest rates than traditional savings accounts. Additionally, the fixed term discourages premature withdrawals, which can incur penalties and fees. When the CD matures, you can access your funds to make your planned purchase.
### Highest Paying CD Rates
Some of the highest CD rates are currently offered by CIBC Bank USA, with a 13-month CD at 5.09% APY. To open this CD, you need a minimum deposit of $1,000 and must meet certain requirements, such as having a U.S. home address, a Social Security number, and a valid driver’s license or state ID. CIBC also offers other term lengths, but the APY may be lower for different terms.
BMO offers a 12-month CD at 5.05% APY, which would earn $516.85 on a $10,000 deposit after twelve months. No minimum deposit is required, but you must fund the CD within ten days to keep it active.
Lending Club provides a 12-month CD with a promotional APY of 5.15%. This account requires a minimum deposit of $2,500 and includes fees and penalties for early withdrawal, so reviewing the terms is essential before committing.
### Advantages of CDs
CDs generally do not have monthly maintenance fees, unlike many savings and checking accounts. The fixed term helps prevent the temptation to withdraw funds early, although early withdrawals can result in penalties or fees.