Discover the potential earnings of $25,000 invested in a 5-year Certificate of Deposit (CD).

 Many individuals will encounter substantial expenses at different life stages, making it prudent to proactively save for such occasions. Whether it's purchasing a car, making a down payment on a home, or planning a vacation, saving in advance becomes essential. This task, however, can be challenging in today's inflationary climate, as failing to achieve a return equal to or higher than the current 3.1% inflation rate can erode the purchasing power of cash.

Fortunately, there are strategies to counter this challenge. The Federal Reserve's response to high inflation rates has included raising its target federal funds rate, consequently elevating returns on deposit accounts. A notable avenue for accessing returns that outpace inflation is through a 5-year certificate of deposit (CD). These accounts offer attractive Annual Percentage Yields (APYs) and the advantage of locking in robust returns for a five-year duration. Curious about the potential earnings? Consider this scenario: What if you were to deposit $25,000 into a 5-year CD right now?

The potential earnings from depositing $25,000 into a 5-year CD depend on the specific CD chosen, as rates and terms can vary among different banks or credit unions. Therefore, it's crucial to explore options and compare offerings.

Among today's top 5-year CD rates, SchoolFirst Federal Credit Union offers 4.60% APY, First Internet Bank of Indiana provides 4.59% APY, and Popular Direct offers 4.45% APY. These rates exceed the current 3.1% inflation rate, but what do the Annual Percentage Yields (APYs) translate to in terms of potential returns?

- SchoolFirst Federal Credit Union - 4.60% APY: Depositing $25,000 would yield $6,303.90 after five years, resulting in a total balance of $31,303.90 at the end of the term.

- First Internet Bank of Indiana - 4.59% APY: A $25,000 deposit would generate $6,288.94 after five years, leading to a total balance of $31,288.94 at the end of the term.

- Popular Direct - 4.45% APY: Depositing $25,000 would result in earnings of $6,080.09 after five years, with a total balance of $31,080.09 at the end of the term.

While a 5-year CD can offer substantial returns, it's worth noting that you can benefit from today's high interest rates with a smaller deposit. For instance, considering a $10,000 5-year CD with the same financial institutions:

- SchoolFirst Federal Credit Union - 4.60% APY: You would earn $2,521.56 after five years, leading to a total balance of $12,521.56.

- First Internet Bank of Indiana - 4.59% APY: A $10,000 deposit would result in earnings of $2,515.58 after five years, with a total balance of $12,515.58.

- Popular Direct - 4.45% APY: Depositing $10,000 would yield $2,432.03 after five years, resulting in a total balance of $12,432.03 at the end of the term.

Why You Should Consider Opening a 5-Year CD Now

One compelling reason to open a 5-year CD at this moment is the current high interest rates, a situation that may not persist in the future.

According to Matt Willer, Managing Director and Partner at Phoenix Capital Group, "Rates are likely going to decline, so you are trying to capture the highest longer-term rate that you can before they regress."

Experts anticipate the first Federal Reserve rate cut of the year, possibly in June, with a chance it could happen sooner. Following such rate cuts, CD rates are expected to decrease as well. This suggests that the present window of opportunity to benefit from elevated CD returns may be narrowing.

Yet, the allure of opening a CD extends beyond the potential decline in interest rates. Additional reasons to consider CDs include:

1. Safety: CDs are generally secure, featuring fixed returns that are not influenced by the fluctuations of financial markets. Moreover, these accounts typically come with FDIC or NCUA insurance, offering protection on balances up to $250,000.

2. Disciplined Saving: With CDs, tapping into your funds before the end of the term usually incurs a penalty. This structure promotes disciplined saving, making it less likely that you'll dip into your CD funds prematurely, thus facilitating the achievement of your savings goals.