How Much Money Should You Put in a CD?
CDs offer guaranteed returns, but locking up too much cash can leave you short when you need it. Here's how to find the right amount.
If you’re looking to grow your money without facing any market risk, a certificate of deposit (CD) might be an appealing choice. But unlike making regular deposits into a savings account, a CD usually has just one initial deposit, and you’ll need to determine how much you should deposit.
There’s no universal dollar amount or percentage rule of thumb, and the deposit amount depends on your individual situation. To start, consider the money’s purpose and when you’ll need it. When you deposit money into a CD, it’s locked up for a fixed period, which could be several years, so your CD should generally contain money you won’t need to access soon for everyday expenses or emergencies.
Because CDs generally offer a guaranteed rate for a set term, they can be useful for money you know you won’t need right away. The key is deciding which savings you can comfortably lock up and which should remain easily accessible. Before putting money into a CD, make sure you have enough cash available for emergencies and other near-term expenses.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Keep your emergency fund out of a traditional CD
CD terms can range from several months to five years, though you may occasionally find terms as long as 10 years. If you withdraw your money before the CD matures, you will usually pay an early withdrawal penalty.
Because of those restrictions, a traditional CD generally is not the right place for your emergency savings. A high-yield savings account or another liquid account gives you easier access to your money without an early withdrawal penalty.
Before opening a CD, make sure you have enough accessible cash to cover emergencies and upcoming expenses, such as insurance premiums, home repairs, taxes and medical costs. Once those needs are covered, you can consider putting additional savings you will not need right away into a CD.
Match the CD amount to a specific savings goal
If you have a specific savings goal in mind, you can use your CD to help you reach that goal. You could use a CD in several ways by depositing:
- $20,000 you’ve saved into a short-term CD for a car you plan to buy next year
- $50,000 you’ve saved toward a downpayment on a home you plan to buy in two years
- The cash you’ve saved for a major renovation you plan to start in three years
If you know you won’t use that money until a certain date, a CD can serve multiple purposes. The CD essentially puts a "do not touch" sign on the money, which may help you save it. At the same time, the money earns interest, helping it grow.
Calculate whether the return is worth locking up your money
Current 12-month CD rates average 1.71%, but shopping around can make a significant difference. Some of the top one-year CDs we have found currently offer APYs of 4.20% to 4.25%. Minimum deposits vary, though, ranging from $1,000 at Accordia Bank to $5,000 at Colorado Federal Savings Bank.
At 4.25% APY, here is approximately how much different deposits could earn over one year:
- $5,000 = $212.50
- $10,000 = $425
- $25,000 = $1,062.50
- $50,000 = $2,125
Some of the top high-yield savings accounts currently offer APYs of 4% or more. For example, Newtek Bank currently offers 4.20% APY with no minimum deposit, while Poppy Bank offers 4.00% APY with a $1,000 minimum deposit.
That's competitive with today's top one-year CDs, but there is an important difference. High-yield savings account rates are variable and can change at any time, while a traditional CD typically locks in your APY for the full term. In exchange for that guaranteed rate, you give up some access to your money.
When CD and savings rates are this close, the difference in earnings may be relatively small. The table below shows how much you could earn at different deposit amounts and how much extra a slightly higher CD rate could actually put in your pocket.
Amount saved |
HYSA at 4.20% APY |
12-month CD at 4.25% APY |
Extra earned with CD |
|---|---|---|---|
$5,000 |
$210 |
$212.50 |
$2.50 |
$10,000 |
$420 |
$425 |
$5 |
$25,000 |
$1,050 |
$1,062.50 |
$12.50 |
$50,000 |
$2,100 |
$2,125 |
$25 |
$100,000 |
$4,200 |
$4,250 |
$50 |
Note: These are illustrative examples based on APY and assume the money remains in the account for one year. HYSA rates are variable and can change at any time, while a traditional CD generally locks in its APY for the term.
Don't overlook early withdrawal penalties
Before you deposit a large amount, check the CD’s early withdrawal penalties. If you need to access the money before it matures, it could cost several months of interest, depending on the bank and term. Penalties can be particularly steep for CDs with longer terms.
Some financial institutions offer no-penalty CDs as an alternative. You’ll still have a guaranteed CD rate, but you can avoid fees if you need to withdraw your money early. You’ll usually be required to withdraw the full amount, and the CD account typically closes once you make that withdrawal.
Rates, terms and early withdrawal penalties can vary significantly by financial institution. Use the tool below to compare current CD rates and find an account that fits your savings timeline:
Consider splitting a large amount among several CDs
One downside of CDs is that your money is generally locked up until the CD matures. A CD ladder can help you balance earning guaranteed rates with having portions of your savings become available at regular intervals.
For example, say you have $50,000 to deposit. Rather than putting the entire amount into one five-year CD, you could divide it equally among five CDs with different maturity dates. You could put $10,000 each into one-year, two-year, three-year, four-year and five-year CDs.
With this strategy, one CD matures each year, giving you access to $10,000 plus the interest it earned. You can use that money if you need it or reinvest it in another CD to continue the ladder. This gives you more flexibility than locking the full $50,000 into a single five-year CD.
Watch the FDIC and NCUA insurance limits
The Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) generally insure deposits up to $250,000 per depositor, per insured institution, per ownership category. Some CDs offer additional insurance coverage beyond the standard $250,000 limit, so be sure to check your financial institution’s specific coverage policy.
If you’re considering making a six-figure deposit, you’ll need to verify and monitor these insurance limits to verify that all of your money is protected.
How much should you put in a CD?
Rather than starting with a specific percentage of your savings, consider how much cash you have beyond your emergency fund, when you will need the money and whether you can comfortably leave it untouched until the CD matures.
The right amount is one that allows you to take advantage of a guaranteed rate without leaving yourself short on accessible cash. Before opening a CD, account for your emergency savings, near-term expenses and other financial goals so you are less likely to need the money before maturity.
Deciding how much to keep in cash is just one part of your larger financial plan. If you want help balancing savings with investments, retirement goals and other priorities, a financial adviser can help you determine where your money may work best.
Use the tool below to connect with a vetted financial professional and get started today:
Related Content
