Getty Images/iStockphoto
If you’ve been looking for an effective way to protect and grow your money in recent years, there have been few options available.
Thanks to inflation and an elevated interest rate environment, Americans have had to shop around to find ways to grow their money effectively. Two such ways have been with traditional savings vehicles, namely high-yield savings and certificates of deposit (CD) accounts. Both come with high interest rates right now and both ensure that the principle amount of money deposited will remain untouched, regardless of any broader economic conditions.
CDs, especially, offer unique benefits right now, thanks to a locked interest rate and higher-than-usual interest rates.
Those considering this account now, however, could benefit from acting promptly, with interest rate cuts looming. Even a small deposit of $2,500 into a CD would be better than keeping it in a regular savings account with an average rate under 1% right now. To better determine why a $2,500 deposit in a CD makes sense, however, it helps to first know what you stand to make. Below, we’ll calculate that for you, timed to the popular short-term, 1-year CD account.
See how much more money you could be earning with a CD here now.
How much would a $2,500 CD earn in 1 year?
The amount of money you will earn on a 1-year CD is determined by a series of factors. This includes the deposit made, the interest rate the lender offers and the term, or length of the CD. It can also be affected by early withdrawal penalties, if you decide to take back your money before the maturity date. Below, we calculated the interest you could earn with a $2,500 deposit using some available 1-year CD rates (early withdrawal penalties were not accounted for). Here’s what to expect:
- 5.10%: With a $2,500 deposit at this rate you’d earn $127.50 upon CD maturity, growing your funds to a total of $2,627.50.
- 5.15%: With a $2,500 deposit at this rate you’d earn $128.75 upon CD maturity, growing your funds to a total of $2,628.75.
- 5.20%: With a $2,500 deposit at this rate you’d earn $130.00 upon CD maturity, growing your funds to a total of $2,630.00
Start earning more on your money with a top, 1-year CD here now.
Don’t forget about taxes
CD account interest can be substantial, boosting your savings in a predictable and safe manner. But the interest you earn on these accounts isn’t exempt from taxes. It will be reported as income earned on your return, so you’ll need to account for that when filing for the tax year you had your CD.
Even if your CD has yet to mature, you’ll still need to report the interest earned during the year it was active. While there are creative ways to help mitigate this — from opening an HSA CD to a 529 CD or more — savers should still go into the process knowing that any money earned won’t be immune from the typical tax ramifications they’re used to.
The bottom line
A $2,500 deposit into a 1-year CD could earn you upwards of $120 and, thanks to the limited deposit, won’t necessarily hamper you from making other deposits in other accounts (or other investments, in general). But interest rates are evolving and today’s rates won’t remain this high forever, underlining the importance of these CDs now. So strongly consider making your deposit now while you can still lock in a 1-year CD rate over 5%.