This Is How Much You Can Really Make With CDs

It might be my quirky algorithm, but it feels like every other ad is another bank screaming about its 5% APY CDs (certificates of deposit). And though I'm not a fan of ads, I gotta say, it makes me kind of happy to see so many places offering such high CD rates.

That being said, I feel like these ads are kind of missing the point because they never tell me what that actually means in real money. I know that these are good rates right now, but how much money are we really talking about?

So I did the math.

The best CD rates are typically from short-term 6-month and 12-month CDs, so I focused on those. I also looked at a few different rates and deposit amounts for a broader estimate, and I assumed interest was compounded monthly.

If you deposit $1,000

A modest $1,000 deposit will get you past the minimums for many of the best CDs, though some stricter options may be out of reach.

6-month CD

12-month CD

In real numbers, the return you get from putting just $1,000 into a CD at any rate isn't going to make any headlines, even when that rate is at a record high. It may get you dinner, depending on what you order.

However, this is money you made without effort, simply by letting your savings sit and grow on its own. It will also continue to grow -- exponentially -- if you let it.

The key is to take your $1,000, plus the $25 to $50 in interest, and roll them over into another high-yield CD. Then another. Each time you roll over, the principal grows larger and earns more interest, compounding your returns.

If you deposit $5,000

At $5,000, you'll have a lot of great CD options, and it should be easy to get a top rate.

6-month CD

12-month CD

You'll see real returns at this deposit level, with even a 6-month CD earning more than $100 in interest as it matures. If you let it sit for 12 months, you'll earn over $200 in interest income.

To show you the power of future compounding, consider this: If you have a 12-month CD at 5%, you'll earn $255.81 in interest. If you roll the principal and interest over into another 12-month CD at 5%, the $5,255.81 would earn $268.91 in interest during those 12 months.

If you deposit $10,000

There are very few CDs you won't qualify for if you have $10,000 to deposit, so you'll have your pick of rates.

6-month CD

12-month CD

By the time we're talking about five-figure deposits, the interest earnings are pretty significant. In just six months, that deposit could return $250 or more with a 5% rate (or higher). Choosing a 12-month CD in that rate range means over $500 in profit.

Now, this is absolutely a fantastic return for what is a very low-risk investment. But if you have $10,000 in savings to grow, you may also want to think about other investment avenues that may offer better yield.

For instance, if you're already maxing out your retirement funds, consider an individual investment account. Stocks may be less expensive to cash out in a hurry -- CDs have hefty early withdrawal penalties -- while potentially offering better returns if you hold them for years or even decades at a time.

Investing in stocks is much riskier, however; there's no guaranteed return, and you could, in fact, lose money. There's no chance of that with a CD (except for the early withdrawal penalty). So you'll need to decide according to your own risk tolerance.

Steady growth can pay off

Look, I get it. CDs aren't exciting. (No one ever made a movie about somebody's CD ladder.) They don't need to be exciting to work, though. And with interest rates as high as they are right now, high-yield CDs absolutely work great for growing your savings with minimal risk. Just look at the math.