If You Put $10,000 Into a 5-Year CD, How Much Money Will You Earn?

If you're putting money into a short-term CD, such as a 1-year CD with a 5.00% APY, it can be fairly easy to visualize what will happen -- you'll simply get a 5% return on the money you put in.

On the other hand, it can be a little more difficult to visualize how much your money can grow over longer periods of time, especially if you're not familiar with the mathematics of compound interest. Don't worry, I won't turn this into a math lesson. But here's what you can expect if you open a 5-year CD in the current interest rate environment.

5-year CD interest rates in April 2024

While CD rates are generally at their highest level in years, it's important to realize that they can vary significantly from bank to bank. And it's also worth noting that just because a bank offers the highest CD rates doesn't necessarily mean it's the right fit for you -- it's important to consider other factors, as well.

For example, if you open a CD with the same bank where your checking account is, it can be extremely easy to move money to checking as your CD matures. And some banks allow you to withdraw the interest paid as you go, while others make you wait until the end of the term to withdraw anything at all. And that's not to mention that some banks have no minimum deposit requirements, while others might require as much as $2,500 to open a CD.

With that in mind, the rates offered by banks on our top 5-year CD rates list have APYs ranging from 3.75% to 4.30% as of this writing. There's no such thing as a perfect bank for everyone (that's why we have 10 different options on our list), so for the purposes of this discussion, we'll use the average APY, which is roughly 4.00%.

How much will a $10,000 CD be worth in five years?

Let's use the 4.00% APY as mentioned in the last section, keeping in mind that your 5-year CD may return more or less than in our example, depending on the particular interest rate you get.

If you deposit $10,000 into a 5-year CD and get an APY of 4.00%, this means that your money will earn $400 in the first year, giving you a year one balance of $10,400. So, you might think that if it earns $400 per year, you'll have a total of $12,000 after five years. But it doesn't exactly work this way.

CDs pay compound interest. In other words, since you ended the first year with $10,400, the second year will earn a 4.00% return on this new, larger balance (this is a good thing). Here's how the entire five-year term would play out:

• In the first year, you start with $10,000, and end with $10,400 as previously explained.
• In the second year, you start with $10,400 and earn 4% of this ($416), giving you $10,816.
• In the third year, you earn $432.64, making your balance $11,248.64.
• In the fourth year, you earn $449.95, giving you a balance of $11,698.59.
• Finally, in the fifth year you'll earn $467.94, which produces an ending balance of $12,166.53.

If you don't like math, don't worry. The important thing to notice is that your interest gets larger every year, since there is more money in your account over time. Thanks to today's elevated CD interest rates and the effects of compounding, our hypothetical 5-year CD earned $2,166.53 in the five-year period. Not bad for a risk-free investment.

Is a 5-year CD right for you?

A longer-term CD isn't right for everyone. We've already discussed the advantages, including a guaranteed interest rate for half a decade, as well as the power of compound interest. But five years is also a long time to commit your money, so be sure that any money you put into a 5-year CD is money you truly won't need for at least five years.