This Is How Much Money You Can Make With $10K in a 1-Year CD
KEY POINTS
- Competitive CDs could earn more than $500 in a year.
- Make sure to look for a good rate -- the national average is currently below 2%.
- Online-only banks, regional banks, and credit unions are good places to look.
I like percentages as much as the next person (honestly, probably more), but when someone just throws them at me without any real-world examples to add context...not so much. So when everyone talks about how great certificate of deposit (CD) rates are right now, I don't want them to just give me rates. I want to know what those rates mean in real numbers.
For instance, suppose I have $10,000 to park somewhere for a year. How much would I really earn if I put it in a CD? Let's see what the math says.
You could earn more than $500 in interest
The exact rate of the CD will dictate how much interest you earn. The higher the rate, the more money you'll earn.
The best 12-month CDs are currently earning around 5%, so we'll look at a range of rates. (I'm assuming interest compounds monthly, as is typical.)
| APY | 4.50% | 4.75% | 5% | 5.25% | 5.50% |
|---|---|---|---|---|---|
| End balance | $10,459.40 | $10,485.48 | $10,511.62 | $10,537.82 | $10,564.08 |
| Total interest | $459.40 | $485.48 | $511.62 | $537.82 | $564.08 |
Overall, you're looking at around $500 in income for just letting your $10,000 sit in a CD for a year. This is basically the definition of passive income, since you don't have to do squat once you set up the CD.
The rate is the key factor
The table above also shows you exactly how much your rate impacts your earnings. With a $10,000 deposit, even a single percentage point can make a $100 difference in how much interest you earn.
It's vital to pay close attention to the rate when you open a CD. The top-tier rates aren't as common as you may think. Indeed, the national average rate for a 1-year CD is a measly 1.81%.
Here's what a rate at or around the average will earn.
| APY | 1.25% | 1.50% | 1.75% | 1.81% | 2.00% |
|---|---|---|---|---|---|
| End balance | $10,125.72 | $10,151.04 | $10,176.41 | $10,182.51 | $10,201.84 |
| Total interest | $125.72 | $151.04 | $176.41 | $182.51 | $201.84 |
So, if you have a CD with a rate at the average, you're going to earn at least 60% less than if you invest in a CD with a competitive rate.
How to find high-yield CDs
There are a lot of ways to find CDs with great rates. You can start by exploring our reviews and recommendations:
You can also check out your favorite online banks. Online-only banks often have better rates than most brick-and-mortar banks. Your smaller regional banks and local credit unions can also be great places to find good rates on CDs (and other products).
No matter where you get your CD, make sure you leave your money alone once it's invested. Your high-earning CD will be a lot less lucrative if you're forking over half (or more) of your interest in penalties.
Our Research Expert
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. Motley Fool Money does not cover all offers on the market. Motley Fool Money is 100% owned and operated by The Motley Fool. Our knowledgeable team of personal finance editors and analysts are employed by The Motley Fool and held to the same set of publishing standards and editorial integrity while maintaining professional separation from the analysts and editors on other Motley Fool brands. Terms may apply to offers listed on this page. APYs are subject to change at any time without notice.