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Interest rates are high today. But if cooling inflation is any indication of what will happen next, we may see them start to drop later this year. And, if rates fall, returns on deposit accounts may also fall.
That’s why it’s a good idea to open one certificate of deposit (CD) right now With the threat of lower rates looming, it’s smart to look for accounts that make it possible to maintain today’s high returns. And, since the CDs come with fixed fees for their entirety DEADLINE, they can do just that. Then again, you shouldn’t put all your savings into a CD. Since these accounts lack of liquidityit is better to keep a separate one account for your emergency savings so you have access to your money whenever you might need it.
So what is the minimum amount of money you should deposit in a CD right now? We asked multiple experts to weigh in.
See how much more you can earn with a better CD now.
What is the minimum you need to deposit in a CD?
The minimum amount you need to deposit in a CD is relative. Here’s how the experts we spoke to say you should decide:
Consider the minimum account deposit
“Banks may set a minimum for a CD deposit,” explains George Kao, CFP, founder and financial planner at Reach One Teach One Financial, a financial education and planning firm. “Typically, you’ll see minimums of $100, $500 or $1,000.”
So you should check to see if there is one minimum deposit required to open the account you want. But, there may not always be one. “Some banks, including online-only banks, offer CDs with no minimum deposits,” says Kao. These banks can be compelling options if you have a small amount of money to invest.
Find out how high your CD rate can be today.
Think about your current situation
Kao says you have to determine “how much is right for you in your current situation.” For example, let’s say the minimum deposit requirement on an account you want to open is $500, but you have $10,000 that you can easily deposit. In this case, $10,000 may be the best amount of money to open your account.
“How much you should put into CDs will depend on your goals for that money, how soon you’ll potentially need it, the interest rate, and various other factors unique to each person,” explains Tyler A. Gray, CFP, Management . Principal at SageOak Financial, a financial planning firm. “Others may try to tell you a rule of thumb, but the hard part about a rule of thumb is that not everyone’s thumb is the same size.”
Base your deposit on your return requirements
Another way to decide the minimum amount of money you should deposit in a CD is to think about what you would like the end result of your investment to be.
“I would look at the after-tax statement with the interest plus principal that you would want to have on the back,” explains Jim Crider, CFP, owner and financial planner at Intentional Living FP, a financial planning firm. “If you’re in a CD that’s yielding 5% and you put money in a 12-month CD and you need — in that risk-free environment — $105,000, you better put at least $100,000.”
Of course, the minimum amount you need to deposit to reach your investment bottom line goal may vary based on the term of your CD and the APY. So there can be multiple ways to produce the return you’re looking for, regardless of whether you’re looking for it win $500 with a CD, 1000 dollars or more.
Consider your emergency fund
“The most important question to address first is whether your emergency fund is fully funded,” explains Nick Covyeau, CFP, owner and financial planner at Swell Financial, a financial planning firm. “Once you’re done funding your emergency fund, you can start investing in a CD with as little as $500 – $1,000.”
“Our rule of thumb is that once you have three to six months of your expenses covered in your emergency fund, a CD is fine for any extra money,” says Jim White, CFP president at Great Oak Wealth Management. a financial planning firm. “It could be $25 or $50—if the CD offered has a higher interest rate than your emergency fund interest rate, that’s a win.”
Think about the interest rate environment
“Another consideration is what you believe the future interest rate environment will look like,” says Jim Eutsler, CMA, wealth advisor and partner at financial services firm HCM Wealth Advisors and CPA. He says you should consider larger CD investments when considering rates will fall.
Lock in today’s high rates with a CD now – before they have a chance to drop.
After all
There is no set minimum amount you must use to open a CD. But you need to open one as soon as possible. “Get started,” says Noah Damsky, CFA, principal at Marina Wealth Advisors, a financial planning firm. “Don’t worry if it doesn’t seem like a lot to start with. If you have $100 to invest, then that’s enough to develop good habits by saving, investing and securing your financial future.” Compare today’s top CDs now.