I Only Have $500. Is It Worth Opening a CD?

If you've been following the news, you may be aware that CD rates are currently the highest they've been in years. But with interest rate cuts from the Federal Reserve potentially happening later this year, waiting to open a CD could mean losing out on some pretty fantastic deals. So if you've been toying with the idea of putting money into a CD, you may want to do so soon.

But what if you only have $500 to fund a CD with? Should you bother with a CD? Or should you stick to a regular savings account instead? After all, savings accounts are paying pretty generously these days in their own right, so why make the commitment a CD requires you to make.

The quick answer is, it depends.

Do you only have $500 total?

There's a big difference between having $500 to put into a CD versus having $500 to your name in total. If you're in the latter category, you should not put the only $500 you have into a CD. Rather, you should keep that money in a regular savings account so you have access to it at all times.

Our Picks for the Best High-Yield Savings Accounts of 2024

SoFi Checking and Savings APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet. Min. to earn $0 Open Account for SoFi Checking and Savings Member FDIC.	APY up to 4.60% Rate info You can earn the maximum APY by having Direct Deposit (no minimum amount required) or by making $5,000 or more in Qualifying Deposits every 30 days. See SoFi Checking and Savings rate sheet at: https://www.sofi.com/legal/banking-rate-sheet.	Min. to earn $0
Synchrony Bank High Yield Savings APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC Min. to earn $0 Open Account for Synchrony Bank High Yield Savings Member FDIC.	APY 4.75% Rate info Our Disclosure: Annual Percentage Yields (APY) is subject to change at any time without notice. Offer applies to personal accounts only. Fees may reduce earnings. For High Yield Savings accounts, the rate may change after the account is opened. Visit synchronybank.com for current rates, terms and account requirements. Member FDIC	Min. to earn $0
Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0

Technically, when you open a CD, you can still get your money out before it matures. But in doing so, you'll generally face a big penalty, the exact amount of which will depend on your bank and the length of your CD. At Capital One, for example, the penalty for cashing out a CD with a term of 12 months or less is three months of interest. That's money you don't want to needlessly lose.

However, let's say you have a complete emergency fund and you're sitting on $500 on top of what you need for unplanned expenses. In that case, you might as well put the money into a CD and earn a bit more interest on it while you can.

As an example, if you're able to earn 4.25% on a $500 deposit in a regular savings account over the next year, you'll come away with $21.25. With a 12-month CD at 5%, you're looking at $25. 

You may be inclined to say, "Hmm, for a difference of $3.75, I'll just stick with a savings account and enjoy more flexibility." But remember, with a savings account, your interest rate is not guaranteed. And given that the Fed is expected to cut interest rates later this year, the rate on your savings could plunge pretty notably. If you choose a 12-month CD, the rate you lock in today is the rate you get to keep for the next year, regardless of what the Fed does. 

Also, because savings accounts don't restrict your money, you may be inclined to take your $500 and splurge on something tempting that comes up. With a CD, you may be less likely to do that because there's a penalty involved. 

Research your options carefully

There are benefits to funding a CD over a savings account right now, even if you've only got $500 to work with. But keep in mind that some CDs have a minimum deposit requirement. This could be $500, $1,000, or another number.

As you research CD rates, pay attention to that specific detail. You don't want to get your heart set on a rate that isn't available to you because you don't have enough money to meet the minimum requirement.