How Much Should You Keep in a CD?

CD, or certificate of settlement, is a safe way to save money for short to medium term financial goals. CDs offer the exchange of higher interest rates and lower liquidity compared to regular savings account. You buy a CD with a fixed interest rate and maturity date, usually between three months and five years from the time the account is opened. If you decide to cash out early, you’ll be hit with a penalty — making CDs more profitable when you can leave them untouched.

If you deposit too much money, you risk your profit by being penalized if you need your money. If your deposit is too small, your savings may not meet our goals — or be able to open the CD in the first place.

What is the minimum deposit for a CD?

CDs require the same minimum deposit as savings accounts, but they are often higher. The minimum deposit required to purchase a CD varies from bank to bank and Type of CD, but generally it ranges from $500 to $1,000. Some banks offer jumbo CDs with a minimum deposit of $95,000 or more.

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How much should you put in a CD?

The optimal deposit size depends on the term of the CD, the penalty for early withdrawal and how much you save. But you also have to play it safe by considering how much money you should keep for unexpected expenses.

How much of an emergency fund do you need?

Experts recommend having enough money for at least six months of expenses, in case something happens, such as job loss. So if you spend $800 a month on expenses and save $10,000 a year, you should have at least $4,800 saved in cash. How much do you keep in a CD versus a advanced savings account — which provides better liquidity — depends on how quickly you may need access to that money. In most cases, putting money into a CD that you need before maturity is a fruitless endeavor.

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How much do you need to save to reach your goals?

For additional savings other than an emergency fund, you should think about how much you should save for short-term or long-term goals. If it’s a shorter-term goal, like a down payment on a house, a CD can be a great place to keep your money safely while earning a competitive return. Stock markets, on the other hand, can be too volatile for short-term savings purposes.

If you’re saving for retirement or other long-term goals, you can choose tax sheltered savings and investment vehicles more than a CD.

Compare the deposit and interest rates with your bank’s early withdrawal policy to help you determine the value of the deposit. For example, the penalty could be 90 days worth of interest, or a minimum fee, such as $25. If withdrawals cost you more than the interest you earn, you can reduce your deposit.

How Much Interest Will You Earn on a CD?

The amount you will earn in interest on a CD depends on the length of the term of the CD, the interest rate at the time of purchase and the particular bank or credit union. Compared to stock market account and savings accounts, CDs often offer the highest yields. But it is important to note interest on CDs is fixed, so if interest rates go up, you won’t earn any extra interest on your CD. The APY, or annual percentage rate, represents the total interest paid on the account over the course of a year.

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The bottom line

You need to maintain a minimum deposit on the CD — usually $500 or $1,000. But the more you keep, the more interest you will earn. Withdrawing your money from a CD before the CD’s maturity date comes with a penalty, and the length of time your money is tied up in the CD is determined by the term of the CD.


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