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Both inflation And interest rates have been quite high in recent years. While the former isn’t good for anyone, as inflation can dramatically (and quickly) increase the cost of everything from housing to fuel for your vehicles, the latter was nice for savers, allowing them to earn significantly more certificates of deposit (CDs) than they could have before.
The exact amount you will benefit from higher rates depends on how much you deposit into your CD. While many banks have minimum deposit amounts (which are typically between $500 and $1,000), maximum deposit amounts vary further, and you’ll want to choose the right amount to maximize your savings without putting a strain on your finances.
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How much money should you deposit into a CD now? This is what experts say
I’m not sure how much to put into it your CD account? This is what experts say to do.
Look at your finances
The best place to start is by looking at your finances. How much do you have that you can comfortably put into a CD without putting a strain on your budget?
“I would start by looking at what you have saved and could potentially invest,” says Brittany Pedersen, director of deposit and payment operations at Georgia’s Own Credit Union. ‘You can look at the previous year to see how often you had to draw on your saved money and which life events affected you financially. Then think about any upcoming expenses (vacations, home repairs, car repairs, etc.) and make sure you still leave enough money to cover these unexpected costs.”
Financial professionals generally recommend having at least six months’ worth of expenses in an emergency fundSo make sure you have this in order before investing extra money.
“Before you pick a number, make sure you have a quick cash or emergency fund set up,” says Cynthia Campos Delgado, founder and financial advisor at Campos Wealth Management. “Leave that where you can access it without being fined, and anything above that fund, you can decide how much you’re comfortable with not touching it for an extended period of time and put it on a CD. “
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Think forward
You should also look to the future when determining what to deposit into your CD account. First, you need to understand the upcoming expenses for which you need money. You should also have an idea of what you will ultimately use CD revenue before – and when you need them.
“There’s no right or wrong amount to put into a CD, it just depends on the money you have available and when you plan to use it,” says Kendall Meade, a financial planner at SoFi. “Someone saving for a down payment on a house might put $50,000 in a CD, while someone using it only for part of their emergency savings might only put $10,000.”
Knowing your end goal for the money can also help you avoid it early withdrawal penaltieswhich comes with many CDs.
“The money you put into the CD should be an amount that you don’t have to touch during the life of the CD term,” says Ben McLaughlin, president of savings platform Raisin.
Don’t stretch too thin
Whatever you do, don’t push your financial limits just to put more money on your CD. Not only can this make paying bills and dealing with unexpected expenses difficult, but it can also compel you to withdraw money early when you’re in a pinch. Again, this would come with an early withdrawal penalty.
“It may be more beneficial to go with a slightly lower amount that you won’t need access to for the duration of the product, rather than stretch yourself to put more money on the CD and risk being fined if you need your money sooner than expected,” says McLaughlin. “Take the extra time to crunch the numbers and see which situation will serve you best.”
Think of ladders
If you’re not 100% sure when you’ll need the money, you can do that too build a CD ladder instead of putting all your money into one CD account.
This strategy requires you to open multiple CDs, all with different maturities. When the first one gets older, you can decide whether to withdraw the money or put it on a new CD to use at a later date.
“If you’re laddering, I recommend putting the same amount in each account,” Pederson says. “This ensures that when they renew, you have access to a comparable amount.
Another strategy is to put a larger amount into your CD with the longest term, since it typically has the highest rate. This can be smart “if you think rates are going to drop soon,” McLaughlin says, because it keeps those high rates for longer.
“Or, if you think you’ll need access to some of your money sooner or later, you can put a larger amount into a product with a shorter term,” says McLaughlin.
it comes down to
The Federal Reserve is largely expected to lower interest rates later this year, which could mean lower rates for CDs are in store. If you want to take advantage of today’s higher rates, consider opening your account soon. Rate cuts could happen as early as September, according to the CME FedWatch Tool.
And if you’re not sure how much to deposit into your account, talk to a financial advisor or investment professional. They can help you make the right choice for your budget and goals.
