If you're putting money into a short-term CD, such as a 1-year CD with a 5.00% APY, it can be fairly easy to visualize what will happen -- you'll simply get a 5% return on the money you put in.
On the other hand, it can be a little more difficult to visualize how much your money can grow over longer periods of time, especially if you're not familiar with the mathematics of compound interest. Don't worry, I won't turn this into a math lesson. But here's what you can expect if you open a 5-year CD in the current interest rate environment.
5-year CD interest rates in April 2024
While CD rates are generally at their highest level in years, it's important to realize that they can vary significantly from bank to bank. And it's also worth noting that just because a bank offers the highest CD rates doesn't necessarily mean it's the right fit for you -- it's important to consider other factors, as well.
For example, if you open a CD with the same bank where your checking account is, it can be extremely easy to move money to checking as your CD matures. And some banks allow you to withdraw the interest paid as you go, while others make you wait until the end of the term to withdraw anything at all. And that's not to mention that some banks have no minimum deposit requirements, while others might require as much as $2,500 to open a CD.
With that in mind, the rates offered by banks on our top 5-year CD rates list have APYs ranging from 3.75% to 4.30% as of this writing. There's no such thing as a perfect bank for everyone (that's why we have 10 different options on our list), so for the purposes of this discussion, we'll use the average APY, which is roughly 4.00%.
How much will a $10,000 CD be worth in five years?
Let's use the 4.00% APY as mentioned in the last section, keeping in mind that your 5-year CD may return more or less than in our example, depending on the particular interest rate you get.
If you deposit $10,000 into a 5-year CD and get an APY of 4.00%, this means that your money will earn $400 in the first year, giving you a year one balance of $10,400. So, you might think that if it earns $400 per year, you'll have a total of $12,000 after five years. But it doesn't exactly work this way.
CDs pay compound interest. In other words, since you ended the first year with $10,400, the second year will earn a 4.00% return on this new, larger balance (this is a good thing). Here's how the entire five-year term would play out:
- In the first year, you start with $10,000, and end with $10,400 as previously explained.
- In the second year, you start with $10,400 and earn 4% of this ($416), giving you $10,816.
- In the third year, you earn $432.64, making your balance $11,248.64.
- In the fourth year, you earn $449.95, giving you a balance of $11,698.59.
- Finally, in the fifth year you'll earn $467.94, which produces an ending balance of $12,166.53.
If you don't like math, don't worry. The important thing to notice is that your interest gets larger every year, since there is more money in your account over time. Thanks to today's elevated CD interest rates and the effects of compounding, our hypothetical 5-year CD earned $2,166.53 in the five-year period. Not bad for a risk-free investment.
Is a 5-year CD right for you?
A longer-term CD isn't right for everyone. We've already discussed the advantages, including a guaranteed interest rate for half a decade, as well as the power of compound interest. But five years is also a long time to commit your money, so be sure that any money you put into a 5-year CD is money you truly won't need for at least five years.
FAQs
For example, a $10,000 deposit in a five-year CD with 3.50% APY would earn around $1,877 in interest. The same CD with a 1.50% APY would earn around $773 in interest, and the same CD with a 0.01% APY would earn only $5 in interest.
How much does a $10,000 CD make in 5 years? ›
Earnings on a $10,000 CD Over Different Terms
| Term Length | Average APY | Interest earned on $10,000 at maturity |
|---|
| 18 months | 2.18% | $332.10 |
| 2 years | 2.08% | $424.40 |
| 3 years | 1.94% | $598.77 |
| 5 years | 1.92% | $1,006.75 |
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With a rate that high, a $10,000 investment in a 5-year CD could potentially grow to over $12,000 by the end of the term — and that's without any additional contributions. That means the returns on your CD will significantly outpace the returns typically offered by traditional savings accounts, averaging about 0.45%.
How much does a 5 year CD pay? ›
The best 5-year CD rates: Our editor's top picks
| Institution | APY | See details |
|---|
| BMO Alto | 4.10% | View offer at Bankrate |
| Alliant Credit Union | 4.00% | View offer at Alliant |
| Capital One 360 | 3.75% | View offer at Bankrate |
| Marcus by Goldman Sachs | 4.00% | View offer at Bankrate |
6 more rows6 days ago
According to FDIC data, the average money market account earns 0.64% APY. However, the best money market accounts currently offer APYs of around 5.00% or higher. If you deposit $10,000 into one of these high-yield accounts, you would earn $513 or more in interest over a year, assuming daily compounding.
Why should you deposit $10,000 in CD now? ›
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.
What is the biggest negative of putting your money in a CD? ›
The cons of CDs
With a savings account, the money is easily accessible in case of a financial emergency or a change in spending priorities. With CDs, you typically can't withdraw the money whenever you want—at least not without paying a penalty.
Can you ever lose money on a CD? ›
Unlike how the stock market or a Roth IRA can lose money, you typically cannot lose money in a CD. There is actually no risk the account owner incurs unless you withdraw money before the account reaches maturity.
Should you do a 5 year CD? ›
A five-year CD allows you to grow your savings at a guaranteed rate, but potential for gains aren't as high as riskier investments. With interest rates at a relative high, now may be a good time to consider putting some of your cash into a five-year CD. Then again, a five-year CD might not be right for every investor.
What is the catch with putting your money in a CD? ›
If interest rates fall before the CD expires, the bank is out of luck and must give you the rate it quoted. If rates climb, you're stuck with the lower rate you agreed to when you opened the account. And if you take your money out before a CD matures, you'll pay a penalty -- typically three months of interest.
Locking money up into a 5-year CD could also expose you to inflation risk unless you withdraw early and take the penalty. "Inflation can erode the purchasing power of your savings over time. If the rate of inflation is greater than the yield on the 5-year CD, you will likely be disappointed," says Sanchioni.
Do you pay taxes on a CD? ›
Key takeaways. Interest earned on CDs is considered taxable income by the IRS, regardless of whether the money is received in cash or reinvested. Interest earned on CDs with terms longer than one year must be reported and taxed every year, even if the CD cannot be cashed in until maturity.
Can you add money to a 5 year CD? ›
Once you commit your money to a CD, you can't get it back or add more until the CD matures, unless you're willing to pay an early withdrawal penalty fee. Add-on CDs relieve some of this inflexibility, letting you add additional deposits but does little to help if you need to make an unexpected withdrawal.
What would 5% interest be on $10,000? ›
Simple Interest Examples
You want to know your total interest payment for the entire loan. To start, you'd multiply your principal by your annual interest rate, or $10,000 × 0.05 = $500. Then, you'd multiply this value by the number of years on the loan, or $500 × 5 = $2,500.
How much interest will I earn on $10,000 in a year? ›
According to data from the FDIC, the average savings account earns 0.46% APY. Currently, however, the best high-yield savings accounts offer APYs of around 5.00%. If you deposit $10,000 into one of these high-yield savings accounts, you'll earn $500 in interest in a year.
Which bank gives 7% interest on savings accounts? ›
As of September 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions offer high-interest checking accounts: Landmark Credit Union Premium Checking with a 7.50% APY and OnPath Credit Union High Yield Checking with a 7.00% APY.
What is the return on a $10000 CD? ›
The national average APY for a one-year CD is 1.74 percent, based on Bankrate research, which shows this average has increased or remained the same since March 2022. If you deposited $10,000 into a one-year CD that pays this national average rate of 1.74 percent, in one year it would be worth a total of around $10,174.
How much is $10,000 at 5 interest? ›
For example, let's say you invest $10,000 in a simple-interest account that earns 5%. You'll earn an estimated $500 in interest and your account will be worth $10,500 after a year.
How much will $10,000 make in a high yield savings account? ›
If you put $10,000 into a high-yield savings account with a 5.00% APY, you'll make $500 in interest in a year. If you deposit $10,000 into a high-yield savings account with a 5.00% APY at age 20, you'll earn nearly $80,000 in interest by the time you turn 65.
How much does a $20,000 CD make in a year? ›
That said, here's how much you could expect to make by depositing $20,000 into a one-year CD now, broken down by four readily available interest rates (interest compounding annually): At 6.00%: $1,200 (for a total of $21,200 after one year) At 5.75%: $1,150 (for a total of $21,150 after one year)
