If you’ve managed to save a substantial sum, like $40,000, you should strategically think about growing that money. Investing in stocks offers significant returns, historically peaking at around 16%, but the risk of loss is also high. Alternatively, a high-rate savings account or certificate of deposit (CD) provides a safer option.
For a $40,000 CD account, the benefits include protection of your principal, fixed rate interest at around 4% or higher, and insurance up to $250,000, courtesy of the FDIC. Short-term CDs, typically maturing in 12 months or less, offer flexibility and won’t lock in your funds for long.
How much can you earn on a $40,000 short-term CD?
Interest rates vary by term, but here’s a breakdown of potential earnings:
- 3-month CD at 3.90%: $384.42
- 6-month CD at 4.10%: $811.76
- 9-month CD at 4.00%: $1,194.10
- 1-year CD at 4.10%: $1,640.00
Savers can secure nearly $400 in about 90 days or over $1,600 in a year. These earnings are guaranteed, provided the funds remain untouched until maturity.
Comparing CDs to traditional savings accounts
Traditional savings accounts offer meager interest rates, averaging around 0.38%. This accounts for a mere fraction of the potential earnings CDs provide. If inflation is at over 3%, a traditional account won’t keep pace, essentially diminishing your money’s value.
Thus, placing funds in high-rate alternatives such as CDs or high-yield savings accounts is preferable.
The advantages of a short-term CD
A short-term CD is particularly valuable during economic uncertainty. It ensures interest earnings worth hundreds of dollars or more, while safeguarding the principal amount. Online platforms simplify the process of finding suitable CD accounts, offering comparative insights on rates, terms, and fees all in one location.
Evaluating these options enables you to start earning more interest on your savings.