How Much Money Should You Put in CDs?

Unlike regular savings accounts, certificates of deposit typically have one deposit: the first time you add money to a CD. Most CDs have minimum opening requirements, but that doesn’t help determine the right amount for you to add to a CD. The amount for a CD depends on your money goals and situation, so let’s narrow down how to determine the right sum.

CDs are for some savings left untouched

A certificate of deposit is a type of savings account. It can be likened to a locked box: You put an upfront sum in, let the money grow uninterrupted for a set period of months or years, known as a term, and then withdraw with interest. The rate of return is nearly always guaranteed upon opening a CD. But not all savings are ideal for CDs.

» COMPARE: Best CD rates

CDs aren’t best for an emergency fund. A standard guideline is to have three to six months’ living expenses in a regular savings account in case of an emergency such as losing a job. Since an emergency fund should be easily and quickly available, a savings account is generally better for that money than CDs. Also, if you withdraw from a CD early, there’s usually a penalty equal to months or years of interest.

CDs aren’t for long-term savings either. When saving for retirement, a general rule is to invest 10% to 15% of your income each year or build up to that amount. Investing vehicles can include an individual retirement account or an employer-sponsored account such as a 401(k). And the money is often invested in some combination of stocks and bonds, which can have higher average returns than CDs.

CDs are good for medium-term savings goals. The best CD rates tend to be at online-focused institutions. High-yield CDs in recent years have reached 4% to 5% annual percentage yields, which might be enough to keep better pace with inflation than regular savings accounts can. CDs also work for savings goals that aren’t immediate, such as a few months to five years out.

» Learn more about when CDs are worth it

Know a CD’s minimum

CDs have a typical minimum balance or opening requirement that’s often around $1,000, but it can range from $0 to $10,000. There are jumbo CDs with minimums traditionally around $100,000, though these CDs don’t necessarily have the best rates in the industry. The minimum is more like a barrier to entry, one to heed but not to stick to as the recommended amount. You generally can’t add money to a CD after the initial deposit, so you’ll probably want to aim for an amount you don’t mind losing access to for some time and that'll earn a decent return. For a rough idea, use a CD calculator to plug in a deposit, CD term and rate. For example, $10,000 placed into a one-year CD at a 5% APY would earn $500 in interest.

Know a CD’s federally insured maximum

As with other bank accounts, a CD is federally insured for up to $250,000 at financial institutions that are members of one of two deposit insurance agencies: The Federal Deposit Insurance Corp. is the insurer for banks, and the National Credit Union Administration is the insurer for credit unions, which are the not-for-profit equivalent of banks.

Federal deposit insurance protects your money up to $250,000 if a bank collapses. A bank may allow you to deposit more than that limit if you’re fortunate to have that much. But if the 2023 bank failures, such as that of Silicon Valley Bank, have you worried about losing your money, it’s best to stay within the limit — or see below for strategies to cover funds beyond that. The $250,000 cap includes all accounts you have at the same bank, such as CDs, checking and savings accounts.

5 tips for keeping your money in CDs insured

Here are five strategies:

• Stay at or under $250,000. Ensure your CD deposit and the expected interest will total less than the $250,000 limit.

• Open CDs at different banks or credit unions. This approach might take more work, but you can utilize CDs at different rates and terms. A CD ladder is a common way to spread your funds across multiple CDs of different lengths, such as one-year, two-year and three-year terms. Each time a CD ends, you decide whether to reinvest in another CD or put the funds elsewhere.

• Open CDs in different ownership categories. For example, you could have one CD in your name, another in a joint account with someone else, and yet another as a trust with beneficiaries.

• Opt for a brokered CD. This is a CD offered by a brokerage or investment firm. This type of CD can be more involved since you’ll need to open a brokerage account and know some basic investing vocabulary. A brokerage account can hold CDs from multiple banks, which allows for FDIC insurance above $250,000.

• Get more FDIC insurance at a bank using a deposit service called CDARS. More than 3,000 financial institutions, including national and community banks and brokerages, provide their customers with FDIC insurance above federal limits through the financial firm IntraFi’s network. InfraFi’s CDARS service lets you have multiple millions of dollars in CDs at one institution, and those funds are managed behind the scenes at multiple banks to federally insure the full amount. CDARS stands for Certificate of Deposit Account Registry Service.

» Want more tips? Here’s our guide to insuring over $250,000

Big picture: CDs fit in the cash portion of a portfolio

Here’s a broader way to think of CDs: A portfolio is your overall collection of assets, generally including stocks, bonds and cash. CDs reside as cash investments in the cash part of your portfolio, intended to be safe and used for goals within several years. Long-term investors may decide to have a small percentage — such as 5% — of an overall portfolio in cash investments, which can include CDs and Treasury bills and notes.

The mix of stocks, bonds and cash in your portfolio can depend on factors such as how long you plan to invest and your risk tolerance. Generally, though, you’ll hold more in cash, cash investments and bonds closer to and during retirement.