In this blog post, I am going to help you answer the question if investing in CDs is worth it. If you already know the answer, then consider sending this blog post to a friend that could benefit. other than that, let’s jump right into it.
What is a CD
A CD (Certificate of Deposit) is a financial product that is sold primarily by banks. When investing in something like this, you will be given a fixed term to how long you have to keep your money in and a fixed interest rate. So yes, you cannot take out money from a CD before the expiration date or face penalties.
Are CD’s A Good Investment?
If you are a person that wants to avoid any type of investment risk, then putting your money in a certificate of deposit will be a good choice. You don’t have to worry about the markets fluctuating every day. Everything is planned and set for how much you’ll receive after the contract.
How Much Can I Earn In X Years?
If you invested $3,000 into a CD for 1 year at an APY of 1.60% (annual percentage rate), you will have earned $48 in interest.
Invest $3,000 into a CD for 2 years at an APY of 1.60%, you will have earned $96.77 in interest.
At 5 years, you will only earn $247.80 in interest.
As you can see above, the interest you make from CD’s is not that great if you’re wanting to see more gains than that. If you want to do your own calculations, then click the link here.
How Much do I need To Invest?
As you saw that investing a couple thousand isn’t going to make you much, the next question is how much? The answer is a lot of money and to hold it for 5 years max. But like I said above, this investment option is for those that want to avoid risk.
I honestly think that you would be better off putting your money in a high interest yield savings account or a Roth IRA. Both of those options long term will make you a lot more money than a CD. I’m not trying to hate it, but I want you to know the best way to go about make the most gains long term.
I know that this post is very short, but I wanted to explain frequently asked questions as simple as I could. These type of questions is something that someone needs the answer to fast, so I hope that I delivered on that.
Side Note: Make sure to send this post to a friend that could find this content useful.
Thank you for supporting The Finance Starter and don’t forget to read other post that I have written. I know that I am going to write a blog post about it soon, but for those wondering, I made $0.70 last month.