A $100,000 1-year CD account may be unconventional but the earnings could be worth it for some savers now.
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If you're a saver with $100,000 accessible now, simply moving it into a certificate of deposit (CD) account may not seem to make much sense. The top CD interest rates, after all, sit just around 4% now but stock market returns, historically, are in the double digits. And, with stocks, you'll be able to move your money around with relative ease. With a CD you'll be required to keep the funds frozen in the account until the maturity date arrives and, depending on the term, that could be 18 months or longer.
But what would happen if you deposited this much money into a short-term version that matures in just one year? The interest earnings here will still be predictable thanks to the account's fixed rate. And the principal won't be impacted in the same way it would if it were invested in today's unpredictable economy. So, while a $100,000 1-year CD account may feel unconventional in a different climate, it could make a lot of sense for savers who are looking for short-term protection and substantial, reliable growth right now.
To better determine the value a CD of this size and length can provide, it helps to begin with the interest-earning capacity. And that's easy to figure out thanks to that fixed rate. Below, we'll crunch the numbers.
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How much interest can a $100,000 1-year CD account earn savers now?
CD rates will vary based on the term and the bank in question. Here's how much interest a $100,000 1-year CD account stands to earn now, calculated against three of the top rates currently available and the assumption that no fees or penalties are assessed against the account before it hits its maturity date:
- $100,000 1-year CD at 4.10%: $4,100.00 upon account maturity
- $100,000 1-year CD at 4.15%: $4,150.00 upon account maturity
- $100,000 1-year CD at 4.17%: $4,170.00 upon account maturity
Savers stand to earn between $4,100 and $4,170 with a CD account of this size and length. But if they take the time to shop around online, they may be able to find a bank that's offering an even higher rate, meaning that their returns could be bigger, too.
Online banks tend to offer more competitive rates and terms than banks with in-person branch locations. So, if you want to earn as much as you can with this type of account, it pays to start your search with an online marketplace that lists rates, banks, terms and more all in one place.
Shop for high-rate CD accounts online here.
Is a money market account a viable alternative?
Money market accounts – which won't require savers to sacrifice access to their funds the way a CD will – can be a viable alternative worth considering for those with $100,000 right now. This account comes with a rate competitive with the top CDs, although slightly lower currently, and it will come with check-writing features that the CD and other savings accounts do not, streamlining your banking needs with a single account.
That said, the money market account employs a variable interest rate that will rise or fall based on market conditions. So, if predictability and security are your top priorities for your $100,000, you may still be better served with the CD account.
The bottom line
If you want to earn more than $4,000, have those earnings be guaranteed and predictable and can easily afford to part with your money for the next 12 months, a $100,000 1-year CD account could be worth serious consideration now. Just be confident in your ability to keep the account frozen until the maturity date arrives next summer or you could get stuck paying a costly early withdrawal fee to regain access to your money.
Edited by Angelica Leicht
