What could $1,000 grow to in a one-year CD?

Top certificate of deposit rates have moved higher after the Federal Reserve lifted its benchmark interest rate.

Since the Fed’s increase, some of the best CDs have reached a 5.00% annual percentage yield, or APY, and they could climb further if rates rise again.

One-year certificates of deposit remain a popular choice because they tend to offer strong average yields without locking up your money for too long.

Still, how much would $1,000 actually earn in a year?

What can a $1,000 CD earn in one year?

The national average yield for one-year CDs is 1.76%, according to the Federal Deposit Insurance Corporation, or FDIC.

At that rate, a $1,000 CD would earn about $17.60 over 12 months, ending with a balance of $1,017.60. But the banks, credit unions and online financial firms on our best CD lists offer much better returns.

The highest return we found on a one-year CD is USAlliance Financial, which offers a 5.00% APY and requires just a $500 opening deposit.

USAlliance is a credit union, but joining only requires a free membership with the American Consumer Council and at least $1 in a USAlliance Financial savings account.

• Annual Percentage Yield (APY)

  3.80% to 5.05% APY

• Terms

  3 to 60 months (5 years)

• Minimum deposit

  $500

Terms apply.

Pros

• Above-average APYs
• $500 deposit minimum for standard CD
• No-penalty and step-up CDs available
• Free membership available by joining an affiliated non-profit

Cons

• Only four physical branches

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You can also earn a solid 4.55% APY with E*TRADE. If you are open to different maturity lengths, Happen Bank offers 4.65% APY on an 11-month CD.

• Annual Percentage Yield (APY)

  4.20% to 4.80%

• Terms

  6 months to 60 months

• Minimum deposit

  None

Terms apply.

Pros

• Above-average yields
• No minimum deposit
• 10-day rate guarantee

Cons

• Lacks no-penalty, bump-up and add-on CDs
• No physical branches

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• Annual Percentage Yield (APY)

  From 3.40% to 4.76% APY

• Terms

  From 6 months to 5 years

• Minimum deposit

  $500

• Monthly fee

  None

Pros

• Above-average APYs
• $500 minimum deposit
• Earned interest can be transferred to a Happen Bank checking or savings account

Cons

• No physical branches

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Other competitive one-year CD rates for deposits of $1,000 include:

How does a CD work?

A traditional CD pays a fixed interest rate for a set period, usually from three months to 10 years, although some institutions offer terms as short as one month or as long as 20 years or more.

Your money earns interest based on the CD’s terms and may compound monthly, quarterly or at maturity.

With a traditional CD, you cannot access your funds before maturity without paying an early withdrawal penalty. For some savers, that is actually a plus because it helps them avoid dipping into money they want to keep untouched.

Best CD terms

How much a CD earns depends on the APY, the term length and the amount you deposit.

The return can also vary by CD type. Traditional CDs keep a fixed rate until maturity. If your bank raises rates, a bump-up CD lets you request the higher rate during the term.

With step-up CDs, the bank automatically increases your rate at set intervals.

According to the FDIC’s National Rates report, one-year CDs currently offer the highest average return.

Source: CD rates

National deposit rates are generally lower because large brick-and-mortar banks already have plenty of customer deposits and do not need to offer especially attractive rates to attract cash. Smaller banks, credit unions and online institutions often pay much more.

• Nuvision Credit Union offers 5.00% APY on a seven-month CD, with a $1,000 minimum and a $5,000 maximum deposit.

• Annual Percentage Yield (APY)

  2.55% to 5.00% APY

• Terms

  From 3 months to 5 years

• Minimum deposit

  $1,000

Terms apply.

Pros

• Highly competitive promotional rates on short-term CDs
• Membership only requires joining the American Consumer Council and making a $5 savings account deposit.

Cons

• Promotional short-term CDs capped at $5,000
• Only has branches in California, Alaska, Arizona, Washington and Wyoming

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• Popular Direct is also offering a 5.00% APY on its 60-month CD, with a $10,000 minimum.

• Annual Percentage Yield (APY)

  From 4.30% to 5.00% APY

• Terms

  From 3 months to 60 months

• Minimum deposit

  $10,000

Terms apply.

Pros

• Above-average APYs

Cons

• $10,000 minimum deposit
• Doesn't have no-penalty or bump-up CDs
• Early withdrawal penalties are among the steepest we’ve seen

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• Annual Percentage Yield (APY)

  From 1.75% to 5.00% APY

• Terms

  From 3 months to 60 months

• Minimum deposit

  $100

Terms apply.

Pros

• Highly competitive APY
• Fixed rate like a high-yield CD
• Low $100 deposit requirement
• Some accounts offer elevated APYs with $100,000 deposits
• Can become a QFCU member by joining the American Consumer Council for free and depositing a $5 share pledge in a savings account

Cons

• Offers term savings accounts, not technically CDs
• Interest compounds monthly
• No physical branches

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How to choose the right one-year CD

Choosing a CD comes down to how much flexibility you want and how much money you can deposit. When comparing one-year CDs, consider these factors:

APYs and terms: Shop for the strongest yield. Online banks and credit unions usually offer better rates than traditional banks.

Minimum deposit: CD minimums can range from $0 to $1,000, and $500 is the most common amount. Jumbo CDs may require as much as $100,000.

Early withdrawal penalty: Taking money out before maturity usually triggers a penalty that can cut into your earnings. No-penalty CDs exist, but they often pay less.

Interest rate environment: If the Fed is expected to lower its benchmark rate, locking in a strong rate now may make sense. If rates are expected to rise, a shorter-term CD or a laddering strategy may give you more flexibility.

Competitive APYs are available through CDs offered by these issuers.

Bread Savings™ CDs

Annual Percentage Yield (APY)

Marcus by Goldman Sachs® CDs

Annual Percentage Yield (APY)

Are CDs a safe place to keep your money?

A CD is generally considered a safe place to deposit money if it is held at a federally insured bank or credit union and your total deposits stay within the applicable insurance limits.

The FDIC insures CDs up to $250,000 per depositor, per insured bank, per ownership category. If the CD is opened at a credit union, the National Credit Union Administration provides the same protection.

Keep in mind that your CD balance is combined with other deposits in the same ownership category at that institution, such as a checking or savings account.

The available APY can rise after you have already locked your money into a fixed-rate CD, and withdrawing funds before maturity usually triggers a penalty.

Inflation can also reduce the purchasing power of your money if it outpaces the CD’s interest rate.

CD pros and cons

Standard CDs have both benefits and drawbacks.

Pros

• Earns a higher return than a standard savings account.
• Fixed interest rate means predictable earnings, regardless of market changes.
• Early withdrawal penalties discourage spending money meant for savings.
• A CD ladder can let you periodically access cash while enjoying higher rates.

Cons

• Earns a lower return than stocks and other investments.
• May have a minimum deposit requirement.
• Early withdrawal penalty means CDs have limited liquidity.
• The value of your CD could decline if inflation rises above your APY.
• Can't deposit additional money once the account is open, unless you use an add-on CD

FAQs

What is a good CD rate?

A CD rate is the interest a bank pays for keeping your money on deposit for a set term. Because you are not withdrawing the funds, the rate is usually higher than a regular savings account. CD rates are fixed, so they stay the same until maturity.

A good CD rate depends on the length of the term. Right now, the strongest rates are for shorter-term CDs, generally in the six- to 18-month range, where yields are around 4.00% to 5.00%.

Are CDs a good investment?

CDs are often considered a good investment because your money can grow without the risk of a rate cut or stock market swings. Since most CDs are FDIC-insured, your money is protected up to $250,000 per account holder. The tradeoff is that the funds are locked in, so pulling money out early usually means paying a sizable penalty.

How much does a $1,000 CD make in one year?

What a CD earns in a year depends on its APY. A $1,000 one-year CD at 4.00% APY would earn $40 in interest.

What's the least amount of money I can put in a CD?

Most CDs require at least $500 to $1,000 to open, although some banks set minimums as high as $10,000. Jumbo CDs may require $25,000 or even $100,000. Some institutions, including E*TRADE, Ally Bank, American Express and Synchrony Bank, offer CDs with no minimum deposit requirement.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff alone and have not been reviewed, approved or otherwise endorsed by any third party.