(CDs) are an , but they serve the same function: You put money in the bank and earn interest on your money. With a certificate of deposit, you agree to keep the money in the bank for a set period of time — and, in general, you face penalties if you remove it before ends. In turn, you typically get a higher interest rate than what's offered with a .
That said, the rate of interest you get will depend on the CD's term length and the bank you choose. Before, it can make sense to take the time to consider how much interest you will earn by the time the CD matures.
What $20,000 could earn you in different CDs
Here's how much you could earn by putting money in a range of different CDs:
How much will you earn if you put $20,000 into a 6-month CD?
Right now, you can earn up to 5.55% if you. At the end of the term, you would have earned $547.51, leaving you with a total of $20,547.51.
How much will you earn if you put $20,000 into a 1-year CD?
You canof up to 5.67% on a 1-year certificate of deposit. If you were to put $20,000 into that account, you would earn $1,134 in interest in a year, for a total of $21,134.
How much will you earn if you put $20,000 into a 3-year CD?
With a, you can earn an interest rate of up to 5.60%. If you get that rate, after three years you'd have earned $3,551.67 in interest, meaning you would have $23,551.67 in your account.
How much will you earn if you put $20,000 into a 5-year CD?
It's possible to find 5-year CDs withof up to 4.75% right now. Putting $20,000 into a CD earning that rate will net you $5,223.20 in interest after five years for a total of $25,223.20.
Once these CDs mature, you have the option to spend the money, put it back into your bank account or put it into another CD. Keep in mind that if you reinvest your money into a new CD, you may not be able to get the same rate a year from now. Rates change, and there is a chance your return will be higher or lower with your next CD.
Who should consider a CD?
CDs can be a part of just about anyone's savings plan and are especially good for people who don't want the risk of investments like stocks and bonds. If you have savings that you won't need in the near future, a CD is a good way to earn a high rate of interest on your money.
If you need access to the money you are saving, a CD isn't a good option. You may want to put your savings in ainstead, where it will also grow but still remain available to you.
The bottom line
A CD can earn you significant interest, but the exact amount you'll earn will depend on the rate and CD term. If you have $20,000 to invest in a CD, you can earn between $547 with a 6-month CD and $5,223 with a 5-year CD.
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