Should you put $5,000 in a 1-year CD now? (2024)

In today's financial landscape, where volatility and uncertainty seem to be the norm, many individuals are seeking safe and stable ways to grow their savings. And in today's high-rate environment means that there are a few different options to do that.

One is a high-yield savings account, which functions like a regular savings account but offers much higher returns on your money. The downside to that type of account, though, is that the rate is variable, so when rates drop, so will the APY.

The other is a certificate of deposit (CD) account, which locks your money away for a certain time frame in return for a high rate of interest and guaranteed returns on your money. And, shorter-term CDs, like 3-month, 6-month and 1-year CDs are particularly appealing to savers right now. But is this the right time to put $5,000 into a 1-year CD?

Start by exploring top CD rates you could qualify for here.

Should you put $5,000 in a 1-year CD now?

For most people, the answer to that question is yes. It can make a lot of sense to put $5,000 into a 1-year CD right now — and there are a few different reasons for that.

One of the primary reasons to consider a 1-year CD is the attractive interest rates currently available. While the exact rates may vary depending on your location and the financial institution you choose, it's not uncommon to find 1-year CD rates that exceed 5% in today's market — with some 1-year CD APYs as high as 5.65% or more. Compared to traditional savings accounts and even some longer-term investment options, this rate is notably higher. In turn, it can provide a big boost to your savings.

Another benefit of putting $5,000 in a CD account currently is the safety and security aspect. When you deposit money into a CD, your principal amount is protected, and you're guaranteed to receive your initial investment plus interest when the CD matures (provided that you don't withdraw your principal early). This assurance can provide peace of mind in a time when financial markets can be unpredictable.

You'll also get predictable returns. With a 1-year CD, you know exactly when your investment will mature and the interest you'll earn. This predictability can be advantageous for those who want to lock in a fixed return without the risk associated with other investment options.

And, while it's essential to have a diversified investment portfolio, not all your assets need to be tied up in long-term investments. A 1-year CD can serve as a valuable component of your portfolio, providing liquidity and stability. This shorter CD term allows you to have some funds readily available while still earning a respectable return on your investment.

Plus, there are a few other potential benefits of putting $5,000 in a CD right now. For example, investing in a 1-year CD requires minimal effort. Once you've chosen a suitable CD with a competitive rate, you can sit back and relax, knowing that your money is working for you. There's no need to constantly monitor the market or make decisions about when to buy or sell.

And, depending on your location and tax laws, the interest earned on a 1-year CD may have tax advantages. In some cases, interest from CDs is tax-deferred, meaning you won't owe taxes on the earnings until you withdraw the funds. This can be advantageous for individuals in higher tax brackets looking to maximize their after-tax returns.

Explore the best CD options available to you here.

What to know before depositing $5,000 in a CD account

While the benefits of investing in a 1-year CD are evident, it's essential to consider your financial goals, risk tolerance and current economic conditions before making a decision. Here are a few points to keep in mind:

• Opportunity cost: While CDs offer safety, they typically yield lower returns compared to riskier investments like stocks. Consider how the CD rate compares to your other investment options.
• Liquidity needs: Ensure you won't need access to the $5,000 you're considering investing during the CD's term. Early withdrawals from CDs often result in penalties.
• Inflation: If the rate of inflation is higher than the CD's interest rate, your purchasing power may erode over time. Factor in inflation when evaluating the potential return.
• Other financial goals: Consider how a 1-year CD aligns with your broader financial goals, such as retirement savings, emergency funds or debt repayment.

The bottom line

Putting $5,000 in a 1-year CD today can be a prudent financial move, especially when interest rates are as high as they currently are. The combination of competitive returns, safety and predictability makes it an attractive option for individuals looking to grow their savings with minimal risk. However, it's crucial to assess your specific financial situation and objectives before making any investment decisions. Ultimately, a diversified strategy that aligns with your goals is the key to financial success.