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If you're looking to earn more interest on your savings than a traditional savings account offers, you may be considering certificates of deposit (CDs). CDs are savings accounts that earn interest for a set term, locking in your funds until the term ends in exchange for higher interest rates. How much to keep in CDs depends on factors including your financial goals, other savings and risk tolerance. CDs are a safe way to save for medium-term financial goals and diversify your investments, but given their lack of liquidity and offer relatively low returns, putting too much money in CDs could limit your financial growth.
How Much Money Can You Put in a CD?
There's no legal limit on how much money you can put in a CD. To safeguard your savings, though, it's important to keep an eye on federal deposit insurance coverage maximums.
The Federal Deposit Insurance Corp. (FDIC) guarantees deposit accounts at FDIC-insured banks up to $250,000 per depositor, institution and account category. The National Credit Union Administration (NCUA) provides the same guarantee for deposits at NCUA-insured credit unions. Money in a CD at an FDIC- or NCUA-insured bank or credit union is safe even if the bank or credit union fails. (If you have more than one CD at the same financial institution, you need to restrict the total amount in all the CDs to $250,000 or less to enjoy this protection.)
Are you planning to put more than $250,000 into CDs? If so, you can protect your money by opening CDs at different financial institutions, keeping to the $250,000 limit at each one. Opening a jointly owned CD—for example, with your spouse—is another way to expand your coverage, since deposits are covered up to $250,000 per account owner.
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Factors to Consider When Deciding How Much Money to Keep in CDs
As you think about how much money you should keep in CDs, here are some things to consider.
Minimum Deposit Requirements
Most CDs require you to deposit a certain minimum amount to open the account. Although you can find CDs with no minimum deposit, minimum deposits generally range from $500 to $2,500 and up, with some minimums as high as $100,000. Typically, higher minimum deposits mean higher annual percentage yields (APYs), but not always.
Access to Your Money
CD terms can range from one month to 10 years. When the CD matures at the end of the term, you get your initial deposit back with interest. Withdraw funds before the CD matures, however, and you'll typically face an early withdrawal penalty.
Think about how long you could do without your money and choose a CD term that fits your financial timeline. For instance, you might open a five-year CD to save for a down payment on a house or a 10-year CD to save for your 3-year-old's bar mitzvah.
Your Emergency Savings
Before committing money to a CD, make sure you have enough easily accessible emergency savings to handle an unexpected expense or weather a job loss. A good rule of thumb is to put aside three to six months' worth of essential expenses, such as rent, food and car payments. However, you may want to save more than that if you're the sole earner in your household or your income fluctuates.
Interest Rates
Purchasing a CD when interest rates are high can help you secure a high APY for the CD's term, even if interest rates drop after you open the account. On the other hand, opening a CD when interest rates are low or projected to rise could leave your money stuck in a low-earning investment longer than you'd like. Compare CD interest rates to the interest rates offered by savings options with greater liquidity, such as high-yield savings accounts and money market accounts, before making your decision.
Your Short- and Long-Term Financial Goals
Stashing money in a CD can remove the temptation to spend funds earmarked for important purposes. CDs tend to work best for medium-term financial goals, such as saving for a car down payment, a home renovation project or a big vacation. For very short-term goals, other savings vehicles offer better returns. For example, the average APY on a one-month CD was just 0.23% as of October 2024, according to the Federal Reserve, but some high-yield savings accounts had APYs of 5% or more in that same time period.
For long-term goals, such as retirement, riskier investments such as stocks tend to deliver higher returns over time. The S&P 500's average annualized return between 2001 and 2020 was 7.5%, according to J.P. Morgan.
Investment Diversification
Cash and cash equivalents, such as bonds and CDs, offer safer choices that can balance out higher-risk investments, such as stocks. Given CDs' relatively low rate of return, however, your savings may not keep pace with inflation if you put too much into CDs. Whether in a retirement fund or brokerage account, diversifying your investments across different asset classes can help reduce your risk and maximize returns.
How Many CDs Can You Have?
There's no law restricting the number of CDs you can have at one time. In fact, opening multiple CDs with different maturity dates, or CD laddering, can provide greater liquidity and flexibility than a single CD, while delivering regular returns.
That said, putting all your eggs in the CD basket can limit your financial growth. Diversifying your investments typically helps you better weather economic ups and downs. You can also protect your savings by ensuring your CDs stay within FDIC and NCUA insurance limits of $250,000 per financial institution, depositor and type of account.
The Bottom Line
Saving money is an important part of any financial strategy. If the restrictions of CDs sound too limiting for you, high-yield savings accounts and money market accounts are two savings alternatives to consider. Like CDs, both typically earn higher APYs than traditional savings accounts. Unlike CDs, however, you can access your savings whenever you need it without paying a penalty.
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