Why you should put $15,000 into a 1-year CD now
If you considered a certificate of deposit (CD) a couple of years ago, chances are that the minimal returns that financial institutions were offering at the time weren't particularly enticing. But it's time to take a second look, because today's CD interest rates are impressive, to say the least.
That's because, in March 2022, the Federal Reserve increased its target federal funds rate in an effort to combat inflation. Following that first rate hike, the central bank then increased its benchmark interest rate 10 more times in less than two years.
That had big benefits for savers since the federal funds rate sets the foundation for deposit account returns. As a result of the Federal Reserve's aggressive interest rate increases, the best 1-year CDs on the market now offer 5.50% APYs or higher. So, if you haven't already, you may want to give these unique savings vehicles a look.
Open a CD today to lock in impressive returns.
Why you should put $15,000 into a 1-year CD now
If you have $15,000 sitting in your safe or a traditional savings account, chances are that your savings aren't producing a meaningful return. So, your idle cash is losing purchasing power as inflation drives prices higher.
In turn, it could be a wise idea to put that $15,000 into a 1-year CD. Here are five reasons you should invest in a CD right now:
CDs offer fixed returns
One of the most important benefits of a CD "is that the investor will maintain a higher rate should interest rates fall," says Peter Mitroff, partner and private wealth advisor at Stoney Creek Advisors.
"Interest rates are bouncing all over these days," says Lamar Brabham, CEO and founder of Noel Taylor Agency. "Grabbing one that looks good and that you can live with for a while is advisable."
The high interest rates savers are enjoying today won't last forever. But CDs give you an opportunity to lock in today's high rates and enjoy them for the entire CD term.
Lock in today's impressive interest rates with a one-year CD now.
CDs are a safe investment
CDs are deposit accounts, and as deposit accounts, they're typically FDIC- or NCUA-insured for up to $250,000 per depositor, per account. As a result, they're a safe investment — that is, as long as you open your account with a reputable, insured financial institution.
FDIC and NCUA insurance protects the money you deposit into the account, up to the limits, so that if the financial institution you deposit the money with goes out of business, you won't lose your money.
CDs don't have maintenance fees
When you save money, your ultimate goal is to earn as much of a return on your savings as possible. However, if you're paying unnecessary fees, like maintenance fees or service fees, to the institution you save your money with, they can cut into your returns. And, if the fees are too high, they could eliminate your returns altogether.
That's not something you typically have to worry about when you open a CD, though. That's because CDs don't usually come with fees. As a result, you'll enjoy 100% of the return on your money.
The best CD rates currently beat inflation
It's important to try and earn a positive inflation-adjusted return on your idle money. If you don't earn a positive inflation-adjusted return, the money you're saving is losing buying power. Although not all CDs offer returns that outpace inflation, today's highest-performing options do.
The current inflation rate in the United States is 3.2% annually. Some of the leading 1-year CDs on the market today offer the following returns:
- Popular Direct: 5.67%
- LendingClub Bank: 5.65%
- CIBC Bank USA: 5.62%
Every one of these options offers an annual return that's well ahead of the current inflation rate. That means that when you open a 1-year CD at any of the financial institutions mentioned above, you'll earn a positive inflation-adjusted return.
You could earn as much as $850.50
With such high interest rates, the earnings on CDs are impressive. You'll earn $850.50 for a total of $15,850.50 after one year when you open a $15,000 1-year CD with Popular Direct when calculating the returns at current rates. A 1-year CD at LendingClub Bank or CIBC Bank USA will produce $847.50 or $843.00 in returns, respectively.
Lock in strong returns with a one-year CD today.
The bottom line
Today's impressive CD rates are the result of the United States Federal Reserve increasing its federal funds rate in an attempt to combat inflation. As inflation slows, there's no telling how long these high rates will last. So, it's wise to lock in today's high rates by investing $15,000 into a 1-year CD now.
