CD Investments: How Much Can CDs Earn?

Certificates of deposit can be considered smart, low-risk investments for some of your money. A CD investment provides guaranteed returns and your money stays federally insured. How much interest you can earn on a CD depends on the rates, which can be affected by Fed rate increases. See what CDs can earn below.

Calculate what interest you’d get from two different CDs. To see how rates really matter, keep the deposit and term lengths the same and notice how the interest rate would affect your overall savings.

Here’s an example. If you invested $10,000 in a five-year CD at 0.50% APY, you would have earned about $253 in interest at the end of five years.

Now let’s try a top rate at an online bank. If you invested that same $10,000 in a five-year CD at 4%, your account earns about $2,167 in interest, a difference of more than $1,900.

A CD investment can refer to money placed in one or more certificates of deposit, a type of federally insured bank account with a fixed interest rate and fixed term length and typically no access to funds until maturity.

CDs are available at banks and brokerage firms, but unlike bank CDs, CDs at brokerages are called brokered CDs that can be bought and sold. This article focuses on the more common type of CDs, standard bank CDs.

• CD rate: This factor determines how much your money grows over time. See our list of the best CD rates.

• CD term: CDs have fixed term lengths typically ranging from three months to five years. The longer the term to let your money grow, the more interest you can earn. Learn more about CD terms.

• Deposit amount: Unlike regular savings accounts, CDs typically require the entire sum you want to save upfront. The larger the amount, the more interest you can earn. Banks tend to have minimum deposit requirements as well. Learn about how much to put into CDs.

• Early withdrawal penalty: If you need to cash out early from a CD, there’s usually a cost. The penalty isn't usually a percentage or fixed fee, but a certain number of months of interest you’ve earned or would’ve earned. Learn more about early withdrawal penalties.

Source: Federal Deposit Insurance Corp.^[0]

For more details, see the average rates for deposit accounts.

» Want to compare? See current CD rates for high-yield CDs

You can find CDs that have rates many times the national average. Online banks and online credit unions tend to have the top rates. Check NerdWallet’s best CD rates.

They’re safe. Like savings accounts, CDs are federally insured to protect your money, both at online and traditional banks as well as at credit unions. This means they have minimal risk, whereas investing in the stock market — another option to grow your money — is more unpredictable and can lead to losses, especially in the short term. See more about CD safety.

But CDs have an opportunity cost. The typical CD has a fixed rate, so once you lock up your money for months or years, you close the door to higher rates that might appear.

Bottom line: CDs might be right for you if you want to avoid risky investments and you’ve set aside money you won’t need for some time. (If, on the other hand, access is a priority, check out NerdWallet’s best savings accounts.)

If you're trying to decide between a CD and something less restrictive, there’s a middle-of-the-road option: CD ladders. This is a savings strategy in which you open CDs of varying lengths. One common scenario involves opening five CDs, with terms of one year, two years, three years, four years and five years. The goal is to have one CD maturing each year to give you the option to reinvest or cash out each time. Learn more about CD investment strategies.

High-yield savings accounts: These regular savings accounts, generally available at online banks and credit unions, provide some of the best savings rates.

» SEE: Best short- and long-term investments for savings goals