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Certificates of Deposit (CD) accounts have always been a smart way for savers to protect and grow their money. And they have become a crucial way to do that in recent years. With inflation at the highest level in decades and interest rates designed to combat it increased, CD yields rose from around 1% in 2020 and 2021 to 4% to 5% now. With the right term and the deposit amount, savers could potentially earn hundreds and even thousands of dollars in interest.
But the interest rate climate is changing again.
Inflation has fallen significantly from plus-9% in 2022 to just under 3% now. And the federal funds rate is set to be cut soon, possibly multiple times before the end of 2024. CD interest rateswill also fall rapidly. Savers who want to lock in today’s high rates while they are still available — and hold on to them for a longer period — should turn to long term cdsnow.
To do this effectively, they must ensure that they only deposit as much as they are comfortable with to cover the entire CD term, otherwise they risk having to pay an additional amount. penalty for early withdrawal to get their money back. They also need to calculate their potential earnings before taking action to make sure it’s really worth opening now. So, how much interest would a $5,000 CD earn in a long-term 2-year CD? That’s what we’ll calculate below.
See here how much interest you can earn with a top CD.
How much interest would a $5,000 CD earn over 2 years?
Rates on 2-year CDsWhile not as high as what is available with shorter terms, they are still competitive. Depending on the lender used, savers can now earn interest rates as low as 4.50%, 4.65% or even 4.75%. Here is how much interest a $5,000 CD would earn at those rates:
- 2-year CD at 4.50%: $460.12 for a total of $5,460.12 after two years
- 2-year CD at 4.65%: $475.81 for a total of $5,475.81 after two years
- 2-year CD at 4.75%: $486.28 for a total of $5,486.28 after two years
While the above profits are significant, they may not be so high that it justifies spending $5,000 for two years. However, if you double your deposit, your returns will also double. For comparison, this is how much you could earn with a $10,000 deposit instead of:
- 2-year CD at 4.50%: $920.25 for a total of $10,920.25 after two years
- 2-year CD at 4.65%: $951.62 for a total of $10,951.62 after two years
- 2-year CD at 4.75%: $972.56 for a total of $10,972.56 after two years
So if you want to make hundreds of dollars with little risk, consider depositing $5,000 or $10,000 into a 2-year deposit now, while interest rates are still high.
Get started today.
Don’t forget taxes
While CDs offer high interest rates and savers can earn significant amounts of money by opening an account, it is not tax-free. Earned interest above a certain threshold must be reported when filing your taxes, although you may be able to defer paying taxes on the account until a later date. You may also be able to take advantage of certain tax benefits if you open a CD as part of your retirement portfolio. Therefore, consult with a trusted financial advisor or accountant to determine your liability before you begin, especially with CDs that last several years.
The heart of the matter
A $5,000 deposit into the right 2-year CD now could earn you between $460 and $486 in yield, and if you double your deposit, you’ll double your yield. This is a smart way to earn guaranteed interest in any economic climate, but with interest rate cuts on the horizon, it’s an especially strategic move to make now. Just be sure to factor in any potential tax implications so you know exactly what to expect when it comes time to file your tax return.
Still have questions? Learn more about your current CD options online now.
