A certificate of deposit (CD) is a financial product offered by banks and credit unions that provides a fixed interest rate for a specified period in exchange for locking in your money. CDs are a popular low-risk investment that offers higher interest rates than a standard savings account. When you open a CD, you agree to deposit a specific amount of money for a set period, during which you cannot withdraw the funds without facing penalties. But at the end, you can withdraw your principal and the accumulated interest.
If it sounds appealing, you likely want to know just how much money you can put in a CD. This article will help you understand the minimum and maximum CD limits, as well as its potential risks and benefits.
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How much money can you put in a CD? Minimum and maximum amounts
Most banks and credit unions require a minimum deposit to open a CD. These minimum amounts can vary widely depending on the institution and the type of CD.
“CDs often have a minimum starting point, like $1,000, but if you’re using a brokerage, the entry point could be higher, around $25,000,” says Melody Brady, a certified financial planner (CFP) and founder of Beechmont Financial. A jumbo CD, designed for larger deposits, might require a minimum of $100,000. Check with your bank or credit union to understand their specific minimum deposit requirements.
Generally, there's no certificate of deposit maximum amount. You can even deposit $1 million or more into a CD if the bank allows it. Some banks may have specific rules or offer higher interest rates for larger deposits, so it’s worth it to shop around and compare options.
That said, the maximum CD amount insured by the Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) is $250,000 per depositor, per institution. This means if you deposit more than $250,000 in a single bank or credit union, any amount above that is not covered by federal insurance, which poses a risk if the institution fails. Effectively, this insurance limit may be considered a practical maximum CD deposit limit.
Deciding how much to invest in a CD
There are a few factors you should think about when deciding how much to invest in a CD, all of which can impact your financial well-being and align with your overall financial goals.
Your financial goals
“Think about what the money is for,” Brady says. “Are you setting aside extra savings to boost your emergency fund? Or maybe you have a big purchase coming up in the next few years? Those goals will help guide how much you should invest in a CD.”
- For short-term goals: The predictability and safety of a CD can be appealing, as it guarantees a return without risking the principal. “If you’re planning for a large purchase in the near future and want to protect your money while earning a bit of interest, a CD can be a smart move,” Brady says.
- For long-term goals: A CD can still play a role, but it might not be the most effective way to grow your money, thanks to its typically low returns compared to other investment options like stocks or bonds. “CDs are low-risk but often don't keep up with inflation, so they should not make up the bulk of your investments,” says Russell Rosario, a certified public accountant (CPA), who advises allocating no more than 10-20% of your portfolio to CDs. “For high-net-worth clients, CDs can provide stability,” Rosario says, “but most of the portfolio should be in the stock market to achieve higher returns.”
Interest rates and terms
The interest rate offered on a CD is a crucial factor that influences how much you might want to invest. Higher interest rates can provide more significant returns, but they’re often linked to longer terms, meaning your money will be tied up for a more extended period. That’s why it's important to compare interest rates offered by different banks and credit unions.
Also consider the type of CD you're investing in. For instance, if you hold a CD directly with a bank or credit union, changes in federal interest rates won’t significantly affect your investment. “However, with a brokerage CD, the market value can drop when interest rates rise,” Brady says. “The good news is, as long as you keep the CD until it matures, your principal and any interest you’ve earned are protected by FDIC insurance. The risk only comes into play if you need to cash out before the maturity date.”
Liquidity needs
Liquidity refers to how easily you can access your money. CDs are generally not very liquid because they require you to lock up your funds for a set period. If you need to withdraw your money before the term ends, you’ll likely face penalties, which can reduce your return.
Before investing in a CD, assess your liquidity needs. If you anticipate needing access to your funds in the near future, it’s wise to invest a smaller amount or choose a CD with a shorter term.
Diversification
Diversification is a key principle in any investment strategy. It involves spreading your investments across various asset classes to reduce risk. CDs can be a valuable component of a diversified portfolio, particularly for conservative investors seeking stability and guaranteed returns. By diversifying, you can take advantage of the safety and predictability of CDs while also pursuing growth through more aggressive investments like stocks and bonds.
Another aspect of diversification is deciding whether to have multiple CDs or just one large CD. Having several CDs with varying terms and interest rates can provide greater flexibility and access to funds as each CD matures. This strategy allows you to manage liquidity better and take advantage of changing interest rates over time. On the other hand, investing in one large CD might simplify management but could limit your flexibility and expose you to interest rate risks if rates rise after you've locked in your investment.
Can you add to a CD regularly?
Most traditional CDs don’t allow you to add additional funds once you’ve made the initial deposit. The amount you put into the CD is locked in for the term, along with the interest rate. However, some financial institutions offer “add-on CDs,” which are a bit more flexible and allow you to make additional deposits during the term.
Add-on CDs can be a smart option if you want the safety of a CD but also the flexibility to continue contributing to your savings over time. It’s important to check with your bank or credit union to see what types of CDs they offer and if any come with the ability to make regular deposits.
FAQs
What happens if you put $10,000 in a CD for 5 years?
If you put $10,000 in a CD for 5 years, your money will earn interest at a fixed rate, depending on the terms of the CD offered by the bank or credit union. At the end of the 5 years, you can withdraw the original $10,000 plus any interest earned, assuming you don’t withdraw the funds early. If you need to access the money before the CD matures, you might incur a penalty that could reduce your earnings.
Is it better to have one CD or multiple CDs?
Whether it’s better to have one CD or multiple CDs depends on your financial goals and needs. Having multiple CDs with different maturity dates, known as a CD ladder, can provide more flexibility and liquidity, allowing you access to funds at regular intervals. This strategy can also help manage interest rate risks. On the other hand, if you have a specific goal with a single timeframe, one CD might be sufficient.
Can I open a CD with $100?
Yes, some banks and credit unions allow you to open a CD with as little as $100. However, some institutions might have higher minimum deposit requirements, such as $500 or $1,000. It’s important to shop around and compare options to find a CD that meets your financial needs and offers a competitive interest rate.
How many CDs can you have at one bank?
There is no limit to the number of CDs you can have at one bank. You can open multiple CDs with different terms and interest rates to align with your financial strategy. Just keep in mind that the FDIC and NCUA insurance limit is $250,000 per depositor, per institution, so if you have several CDs exceeding that amount at one bank, only up to $250,000 will be insured.
Can you put 1 million dollars into a CD?
Yes, you can put 1 million dollars into a CD, but only $250,000 of that amount will be insured by the FDIC or NCUA per institution, per depositor. To ensure your entire deposit is covered, you could spread the amount across multiple CDs at different banks or credit unions, each within the insured limit.