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2 reasons to deposit $10,000 into a long-term CD right now (and 2 reasons not to)

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A long-term CD can offer a strong return in today's high interest rate environment.  Getty Images

Do you have $10,000 more than you need for your emergency fund? Are you trying to find a safe place to store your money and earn a high return? A long-term certificate of deposit (CD) may be what you're looking for. 

CDs are deposit accounts that are typically insured by the FDIC or NCUA for up to $250,000 - which makes them safe. And, in today's high interest rate environment, leading accounts are offering elevated returns

However, it's important to note that when you opt for a CD, you're trading liquidity for earnings. That's because the money you deposit into the account needs to stay there for the entire term. If you fail to keep your money in the account, you may pay an early withdrawal penalty

Nonetheless, these accounts are attractive options for saving money - especially if you have $10,000 that you won't need to spend anytime soon. Below, we'll break down the pros and cons of investing that $10,000 into a long-term CD right now.

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2 reasons to deposit $10,000 into a long-term CD right now

Long-term CDs are safe investments that offer strong fixed returns. But, that's not the only reason to consider depositing $10,000 into one now. Here are a couple more to consider: 

Inflation is cooling

Inflation is cooling. And, with a strong correlation between inflation and interest rates, that's important. When inflation is up, interest rates tend to follow. But, interest rates can follow inflation downward, too. In April and May, inflation slowed - and that's an important consideration in today's interest rate environment. 

The Federal Reserve pushed its federal funds rate to a 23-year high in an effort to combat post-pandemic inflation. That upward push on interest rates happened through a series of 11 rate hikes spanning from March 2022 through June 2023. 

But, with inflation cooling, the Federal Reserve could start cutting the federal funds rate. And, if that happens, interest rates on deposit accounts could drop. So, locking your rate in now while the federal funds rate is still high may be a strong move. 

Lock in your CD rate now before any potential rate cuts

You could earn thousands of dollars

With interest rates being elevated, you stand to earn a meaningful return when you deposit $10,000 into a long-term CD. For example, you could earn a 4.61% APY by depositing $10,000 into a 3-year CD right now. If you chose to do so, you would earn $1,447.74 in interest - bringing your total balance to $11,447.74 after three years. 

You could also lock in your rate for longer, albeit at a slightly lower APY. With a 4.50% APY on a 5-year CD you would earn $2,461.82 in interest for a total balance of $12,461.82 at the end of your term. 

To put those returns into perspective, you could compare them to the average savings account interest rate - which is 0.45%. At 0.45%, you would only earn $135.61 in three years or $227.03 in five years as opposed to CD returns of $1,447.74 and $2,461.82, respectively. 

2 reasons not to deposit $10,000 into a long-term CD right now

While a CD may be a strong option for many, there are some reasons to be apprehensive about opening one right now. Two of those reasons include: 

You won't be able to take advantage should rates rise again 

With inflation cooling it's unlikely that interest rates will rise anytime soon. But, it's not impossible. The inflation rate for May was 3.3%. And, while that rate showed continued cooling from the decline in the inflation rate we saw in April, it's still higher than the Fed would like to see. Keep in mind, the Federal Reserve's inflation rate goal is 2%. If inflation doesn't continue cooling and stays too high, rates could rise. 

That could pose a problem if you open a long-term CD now. After all, if your money is locked up, you won't be able to take advantage of rising return rates in the future. 

You may be able to make even more elsewhere 

Opening a long-term CD can give you access to better returns than you would earn on a traditional savings account. But, you may be able to get a higher return elsewhere. If you have a healthy risk appetite, stocks and other higher-risk investments may be a more advantageous way to invest your $10,000, especially amid today's recent market performance.

Find out how much you could earn with a CD today

The bottom line

If you're looking for a safe way to store $10,000 that can produce a meaningful return right now, consider opening a long-term CD. With inflation cooling, you may not have access to today's high return rates for much longer. And, you could earn over $2,400 in interest on leading long-term CD accounts. But, keep in mind that if you lock your money up, you won't be able to take advantage of future rate hikes. And, for those with a healthy risk appetite, you may earn more by investing your money elsewhere. 

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