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Today’s high interest rates make certificates of deposit (CDs) more attractive for savers. Not too long ago, securing an interest rate of 5.00% APY was unheard of—but now, it’s possible.
In an attempt to get the most out of today’s high interest rates, you may be wondering how much money you can feasibly invest in CDs. The answer depends on several factors, like your financial goals, your overall financial situation and the specific CDs you open.
Read on to learn what you should consider when deciding how much money to keep in CDs.
How Much Should I Keep In CDs?
Like many financial questions, there’s no one right answer regarding how much you should keep in CDs. To figure out what makes sense for your situation, ask yourself the following:
- Do you have plenty of emergency savings? If the answer is “no,” you may want to focus on that first. Generally, it makes sense to keep your emergency savings in a more accessible account—like a savings account—rather than a CD. That way, the money is there when you need it, and you won’t ever have to pay an early withdrawal penalty to access it.
- What are your financial goals? Your financial goals and their timelines should be the driving factor behind your savings strategy. Short-term savings goals with a specific deadline, like a down payment or upcoming vacation, are good candidates for a CD. Long-term savings goals—like retirement—aren’t, because you’ll miss out on bigger returns you can find elsewhere.
- How much money do you need or want to earn, and by when? With a specific goal, a deadline and your CD’s interest rate, you can reverse-engineer your CD strategy to figure out how big of a deposit—and how long of a term—you need to reach your goal.
- Do you have plenty of liquid cash elsewhere? Ideally, you never have to make an early withdrawal from your CD, which can cost a pretty penny and eat into your earnings. Make sure you have enough accessible cash to cover any upcoming expenses before deciding to lock up money in a CD.
- Do you have enough money to meet an account’s minimum deposit requirement? CDs often require a minimum deposit to open an account, so you’ll need to put at least that amount into your CD. If you don’t have much to invest, it’s possible to find a CD with no minimum requirement.
How Much Money Can You Put in a CD?
There aren’t strict limits to how much you can put in a CD. While financial institutions may limit the amount of money you hold in certain accounts, there’s no hard-and-fast rule limiting your CD deposits.
However, federally insured banks and credit unions only insure up to $250,000 per depositor per account ownership category. If you put more than this amount in a single CD, some of your money will be at risk.
You can still safely invest more than $250,000 in CDs by opening accounts at multiple financial institutions. As long as your deposits at each bank or credit union are under $250,000 per account ownership category, the money in your CDs will be secure.
Remember, just because you can put a lot of money in CDs doesn’t mean you should keep all of your savings there. For instance, you may need to access your emergency fund before your CD term is up, which would require paying a penalty to access it.
What Is the Minimum Deposit for a CD?
Minimum deposits vary based on account and financial institution, but a required deposit of around $500 to $1,000 is typical when opening a CD. However, it is possible to find CDs with no minimum deposit requirement.
Jumbo CDs are like regular CDs but require much larger minimum deposits. Minimum deposits for jumbo CDs are usually around $100,000.
While you must meet the minimum deposit to open a CD account and earn interest, you can always exceed the minimum deposit. Remember that any deposits or interest earnings above $250,000 (per insured institution, per account ownership category) won’t be federally insured.
How Many CDs Can You Have?
Theoretically, you can have as many CDs as you want. There isn’t a limit on the number of CDs you can open, though banks and credit unions may limit the maximum number of accounts you can hold. If this happens, you can always open a CD somewhere else.
Even though there aren’t widespread limits on the number of CDs you can have, that doesn’t mean it’s wise—or even feasible—to open lots of accounts.
Keep in mind you still have to meet account minimums in order to open a CD. For example, say you want to open five CDs as part of a CD ladder—a strategy that staggers CD maturity dates for frequent access to your funds. If each of those five CDs has a $1,000 minimum, you’d need at least $5,000 to open the accounts.
And don’t forget, the more CDs you have, the more accounts you need to keep track of. Keep this in mind every time you open a new CD.
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Bottom Line
CDs can be a safe way to earn a little interest on your savings over a set period of time. But don’t put more money in CDs than you can afford to lose access to for the length of the CD’s term. Once your money is in a CD, you generally can’t touch it without penalty until it matures.
Consider your goals before deciding how much to put in CDs. CDs are a great option when you need to set aside money for shorter-term savings. Just make sure you have money saved elsewhere for long-term savings and emergencies.
Frequently Asked Questions (FAQs)
Are CDs worth it?
A CD may be the best option for some of your cash if you can afford to lose access to it for the duration of the term and if the CD’s interest rate is competitive. CDs work best for specific, short-term savings goals, like down payments, vacations or weddings. But when it comes to emergency savings or investing money for retirement, CDs usually aren’t the best choice.
What is a jumbo CD?
A jumbo CD is similar to a regular CD, but it requires a higher minimum deposit. While a typical CD might require a minimum of $1,000 to open, a jumbo CD usually requires a minimum of around $100,000. Because of the high minimum deposit requirement, jumbo CDs don’t make sense for a lot of investors. They’re more popular among institutional investors working with larger amounts of money.
How much can you earn with a CD?
The amount you earn with a CD depends on the term, interest rate and initial deposit. Based on these factors, you can use a CD calculator to determine how much you can earn. It may seem obvious, but a longer term, a higher interest rate and a larger initial deposit will lead to higher yields. On the other hand, early withdrawals and penalties will cut into your earnings.
What are current CD rates?
Some of the best CD accounts earn above 5.00% APY right now. With current rates varying so much, it’s worth shopping around to find a competitive rate.
Introduction
As an expert in personal finance and savings strategies, I can provide you with valuable insights on the topic of investing in certificates of deposit (CDs). I have extensive knowledge of the factors to consider when deciding how much money to invest in CDs, as well as the benefits and limitations of this savings option.
Factors to Consider When Deciding How Much to Invest in CDs
When determining how much money to keep in CDs, there are several important factors to consider:
1. Emergency Savings: Before investing in CDs, it's crucial to ensure that you have enough emergency savings. It is generally recommended to keep your emergency fund in a more accessible account, such as a savings account, rather than a CD. This ensures that the money is readily available when you need it, without incurring early withdrawal penalties.
2. Financial Goals: Your financial goals and their timelines should guide your savings strategy. Short-term savings goals with specific deadlines, such as a down payment or a vacation, are suitable for CDs. However, long-term savings goals, like retirement, may not be ideal for CDs, as they may offer lower returns compared to other investment options.
3. Desired Earnings and Timeline: To determine the deposit amount and term length for your CD, consider your specific financial goal, desired earnings, and timeline. By reverse-engineering your CD strategy using the interest rate and your goal, you can calculate the necessary deposit and term length to reach your objective.
4. Liquid Cash Availability: It's important to have enough liquid cash available to cover any upcoming expenses before deciding to invest in a CD. This ensures that you won't need to make an early withdrawal, which can result in penalties and reduced earnings.
5. Minimum Deposit Requirement: CDs often have a minimum deposit requirement to open an account. You will need to deposit at least that amount to open a CD. However, it is possible to find CDs with no minimum deposit requirement.
Maximum Amount and Number of CDs
There are no strict limits on the maximum amount you can invest in CDs. However, federally insured banks and credit unions typically insure up to $250,000 per depositor per account ownership category. If you deposit more than this amount in a single CD, some of your money will be at risk. To safely invest more than $250,000 in CDs, you can open accounts at multiple financial institutions, ensuring that your deposits at each institution remain under the insured limit.
Regarding the number of CDs you can have, theoretically, there is no limit. However, individual banks and credit unions may have their own limits on the maximum number of accounts you can hold. If you encounter such limits, you can always open CDs at different financial institutions. It's important to keep in mind that each CD may have its own minimum deposit requirement, and managing multiple accounts can become more complex.
Conclusion
In conclusion, when deciding how much money to invest in CDs, it's essential to consider factors such as your emergency savings, financial goals, desired earnings, liquid cash availability, and minimum deposit requirements. While there are no strict limits on the maximum amount or number of CDs you can have, it's important to balance your savings across different accounts and investment options to meet both short-term and long-term financial needs.
Remember, CDs can be a safe way to earn interest on your savings over a set period of time, but it's crucial not to put more money in CDs than you can afford to lose access to until the CD matures. Consider your goals and financial situation before deciding how much to invest in CDs, and ensure that you have other savings options for long-term goals and emergencies.
I hope this information helps you make informed decisions about investing in CDs. If you have any further questions, feel free to ask!
