Choosing the right amount to deposit in a certificate of deposit (CD)

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• There isn't a set CD opening deposit that works for all; it depends on your goals and finances.
• When depositing money into a CD, be mindful of any opening requirements or penalties.
• Make sure you're banking with a financial institution you trust and that your money is federally insured.

Traditional CDs are an appealing option for storing money that isn't needed right away. In fact, the best CD rates offer around 4% to 5% annual percentage yield (APY) right now.

If you're interested in opening an account, you'll need to decide how much money to deposit. This could be a big decision because you'll have to keep money in a CD for the full term or face a penalty. To get a better idea of how much to deposit upfront, here are four tips to keep in mind before you open a CD.

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Understanding CDs: A brief overview

A certificate of deposit , or CD, is a type of bank account. It pays a fixed APY, which means you'll earn the same interest rate during the entire term. In other words, if you open a 1-year CD offering 5% APY, you'll earn 5% APY on your account for the full year. This is one of the primary benefits of CDs, since other types of savings accounts have variable interest rates.

If you need access to your money, however, other savings options will likely be more suitable. For example, you may prefer a high-yield savings account over a CD if you want to withdraw and deposit money at any time. That said, some banks have savings account withdrawal limitations. Banks have the option to enforce a six-per-month transaction limit, according to Regulation D.

How to determine your CD deposit

1. Figure out what you want to save money for.

Before you open a CD, financial experts recommend having a clear goal and timeline. CDs are best for saving money for short-term goals or a supplemental cash reserve. You could consider investing in a CD if you'd like to keep money in a safe, low-risk place. For example, CDs could be good places for keeping money that you plan to use for a home renovation or travel for a future holiday.

"It can be a great way to get interest, but it's not necessarily the best tool for all goals," points out Elizabeth Plot, CFP and founder of Primas Financial Planning . "If you're looking at this as an emergency fund, a CD should be an extension of an emergency fund, but not where you keep any money that you really want."

Having a specific goal with a timeframe can provide a clear guideline for your certificate of deposit amount. If you need help setting up a timeframe for a goal, you could use a compound interest calculator to see how much interest you may earn over time.

Traditional CDs will not allow you to deposit money during a term. If you'd like more flexibility, you could build a CD ladder . To create a CD ladder, you'll split your money between accounts of different term lengths. For example, you could open a 6-month, 1-year, and 3-year CD. This will allow you to make deposits at different CD maturities as well as have more access to your money in general.

2. Consider whether CD minimum balance requirements will factor into your CD options.

A minimum balance requirement is a set amount needed to maintain an account. At financial institutions, the typical minimum CD deposit is $1,000. However, the range of minimum balance requirements can vary widely between financial institutions. For example, a Popular Direct CD requires at least $10,000, while an Ally or Capital One 360 CD does not require a minimum deposit to open.

When choosing a CD , Patrina Dixon, CFEI, RFC, and owner of P. Dixon Consulting, LLC , recommends paying attention to more than which bank offers the highest rate.

"If your income and expenses do not dictate that you have the money to invest $5,000 into a CD, even though you're going to get a return in 12 months, then you can't do $5,000. Look for a CD that has a lesser required amount in order for you to still gain money from having money in a CD," says Dixon.

Quick tip: If you can deposit a high account balance, consider opening a jumbo CD. Some financial institutions will offer higher interest rates for these types of CDs. The best jumbo CD rates may offer above 4.50% APY.

3. Determine how much money you can realistically set aside to avoid early withdrawal penalties.

CDs differ from other types of savings accounts because they have early withdrawal penalties.

An early withdrawal penalty is a fee you'll have to pay if you withdraw money from the account during the term. They can be a potential disadvantage because the fee is usually some of the interest you've earned on the account.

Plot suggests looking at your finances as a whole, before deciding on a CD term.

"You're locking up your money for a long period of time, so you really want to make sure that, if possible, you don't have to withdraw it for that time," says Plot.

Quick tip: Usually, long-term CDs offer more competitive rates than short-term accounts. However, short-term CDs currently have higher rates than long-term accounts due to the economic environment. Banks are paying lower interest rates on long-term CDs because they expect the Federal Reserve to cut rates in the future, and have short-term certificates with high rates to still have competitive offerings.

4. Make sure your money is covered by federal insurance.

The NCUA and FDIC protect bank accounts for up to $250,000 per depositor, per category. If a bank or credit union shut down suddenly, your insured money would be safe.

"If you deposit $1,000, and the institution is FDIC insured, that dollar amount is within the amount of money that the government will insure," explains Dixon. "If you are well over, something that is not within the FDIC insurance realm, then you run the risk of only getting up to the amount that they insure."

For example, if you opened a CD by yourself with $275,000, then $25,000 is uninsured. If your bank fails , you'll receive a Receiver's Certificate because you had an amount that exceeded $250,000. A Receiver's Certificate allows you to claim funds once the bank's assets are liquidated. However, it isn't guaranteed that you'll get your uninsured money back.

CD minimum balance deposit FAQs

What is a good amount to put into a CD?

The best amount for a CD will depend on your savings goals and overall financial strategy. CDs also have different minimum opening deposit requirements, depending on where you bank. Generally, you need at least $1,000 to open a CD.

How long should you keep money in a CD?

You should keep money in a CD until it reaches maturity. If you withdraw money before a CD term ends, you'll have to pay a penalty. That's why it's important to choose a term length that aligns with your financial goals.

Is it smart to put money in a CD right now?

It could be smart to lock in a CD rate while there are still competitive interest rates available — if it fits one of your savings goals. Once the Federal Reserve starts cutting interest rates, CD rates are likely to drop incrementally throughout 2024.

Do higher CD deposits have higher interest rates?

Sometimes, if you deposit more money into a CD, you'll be able to get a higher rate. However, this isn't something that occurs at all financial institutions. A few examples include Quorum Federal Credit Union, Connexus Federal Credit Union, and Consumers Federal Credit Union.

Do CDs have a maximum deposit?

Generally, you'll want to keep a maximum of $250,000 in an individual CD or $500,000 in a joint account. A few financial institutions may also impose limits for a maximum CD deposit amount. This will be specified in the terms of a CD before you open an account.