Key Takeaways
- Most CDs require a full deposit upfront, and you can’t add funds later, so determining how much money you want to put in is essential.
- When calculating this amount, consider when you’ll need the funds, the return you want to get and federal deposit insurance limits.
- To maximize your earnings and have regular access to your funds, consider building a CD ladder.
Opening a certificate of deposit is a great way to earn interest on money you can set aside for a specific period. How much should you put in one? The majority of CDs allow only one upfront deposit -- a big difference versus savings and money market accounts, which let you add funds anytime you want. So you want to make sure to get the amount right.
There's no hard-and-fast rule for how much money you should deposit in a CD, there are some key considerations that can help you determine your ideal amount.
How much should you keep in a CD?
Any amount you deposit in a CD should be money you're comfortable locking up for the full term length. First, you should have enough cash in an emergency fund to cover at least three months of expenses, and this cash should be in an account where you can access it at any time without penalty.
Next, be careful that you aren’t putting toomuch money into a CD. CDs are protected by federal deposit insurance through the Federal Deposit Insurance Corporation (for banks) or the National Credit Union Administration (for credit unions). This insurance has a limit: $250,000 if you’re opening the CD on your own or $500,000 if you’re opening it with another person. Any amount above this won't be protected by deposit insurance if the bank fails. If you have more than that to deposit, consider putting it into multiple CDs so the full amount is protected.
Finally, consider how fast you need the money to grow and where you might find a better return. For example, if you’re 35, a six-figure deposit in a CD may not make much sense since you could likely score a much bigger return with riskier investments in the stock market. If you’re 65, the safety of CDs can be appealing enough to warrant a bigger deposit.
What’s the minimum deposit for a CD?
Some banks don’t require a minimum deposit for a CD, while others require minimum deposits ranging from $500 to $1,000 or more. The required deposit also depends on the CD type. For instance, some banks offer jumbo CDs, which have steeper minimum deposit requirements -- sometimes at least $100,000 -- in exchange for higher annual percentage yields. Before opening an account, always compare deposit requirements to ensure you can meet the minimum amount.
Also keep in mind that the vast majority of CDs allow only a one-time deposit, which means you can't contribute any additional funds throughout the term. The only exception is if you have an add-on CD, which lets you deposit more over time. Add-on CD rates may not be as high as traditional CD rates.
Should you put your emergency fund in a CD?
An emergency fund is an essential safety net for unexpected large expenses. You shouldn’t put yours into a CD.
Depending on APYs, storing your emergency fund in a CD may earn you more interest than a savings account. You'll face an early withdrawal penalty if you need to pull out your money before the CD matures. It could also take several days to receive your funds.
Emergency savings are best kept in a high-yield savings account so you can easily access your cash.
Other factors to consider
In addition to how much you want to deposit, weigh these things when choosing a CD.
Your savings goals
CDs are a good place to store savings for a specific expense, said Cory Moore, certified financial planner and founder of Moore Financial Planning. For example, you may be setting aside money for a down payment on a home or toward your kids’ college savings.
“I like CDs where we can back into a goal,” Moore said. “So if we know we have a certain payment due in six months, we can know exactly what we need to deposit in order to meet that goal down to the penny.”
For example, if you have money saved for a car or wedding fund, a CD with the right term can help you stash the money in a safe place so you’re not tempted to spend it.
The return you want to earn
If you’re a little shy of a savings goal, you can also calculate how much interest you’ll earn before opening a CD to see if it will help you reach your target number.
Are CDs a good investment?
A few factors will help you decide whether a CD is a good place to stash cash for the future. Here’s how to decide:
APY: Always do the math to compare the varying returns across different CD terms and CD rates. Also see if there are other savings options with better returns, such as a high-yield savings account or an I bond. Keep in mind that CDs have a fixed interest rate, while other savings or investment options may have variable APYs.
Time horizon: You can earn a guaranteed return with a CD, but make sure it’s the best choice based on when you’ll need the money. If you’ll need the money in a few months, you may want something with more liquidity
Risk tolerance: CDs are FDIC- or NCUA-insured to protect your funds. You may earn a bigger return if you’re willing to take on more risk -- for instance if the stock market is performing well. The trade-off is that you may lose your principal and any interest if the market takes a downturn.
Other savings options to consider
If you need more flexibility with your finances, consider one of these alternatives. Remember that each option has pros and cons to weigh.
CD ladder
Experts recommend CD ladders -- opening multiple CDs -- if you don’t want to tie your funds up in one CD or you think you might get a higher return on your savings down the road.
Here’s how it works: You spread your deposit across several CDs with varying CD terms. For example, if you have $5,000, you could open five CDs with each CD getting $1,000. You may open a six-month, one-year, 18-month, three-year and five-year CD. When each CD matures, you can choose to roll the funds into a new CD at the current APY the bank offers, spend the money or put it in a new savings account altogether.
Keep in mind that if you withdraw funds from a CD before the term ends, you’ll pay an early withdrawal penalty, but only for the CD you’re withdrawing from -- not from all the CDs that make up your CD ladder.
High-yield savings accounts
High-yield savings accounts are usually offered by online-only banks. Since they have fewer overhead costs than brick-and-mortar banks, online-only banks pass some of the savings down to customers in the form of higher savings rates. You’ll need to be comfortable with managing your money online instead of in person.
These accounts work like traditional savings accounts. You can make regular contributions and withdrawals and earn interest on your balance. Keep in mind that some high-yield savings accounts require a minimum balance to earn the highest interest rate, or you may only earn the highest APY for up to a certain amount.
Money market account
Money market accounts are a mix between high-yield savings and checking accounts. You’ll earn interest on your funds, but most money market accounts have a minimum balance or higher initial deposit requirement. APYs for this type of account are usually lower than high-yield savings accounts, plus the interest rates are variable, not fixed.
A money market account often comes with debit card and check-writing privileges, so it’s useful if you need to make purchases. The downside is that you may be limited to the number of withdrawals or transactions you can make per statement cycle.
The bottom line
How much you should invest in a CD depends on several factors, including what your bank requires and your specific financial goals. Start by making sure you can meet a bank’s minimum deposit requirement. You can move the amount you’ve set aside for specific goals to help prevent you from spending those funds. Just make sure you don’t deplete your emergency savings — you want that money easily accessible in case you need it in a pinch.
Correction: An earlier version of this article was assisted by an AI engine and it mischaracterized some aspects of CDs. Those points were all corrected. This version has been substantially updated by a staff writer.
