How much interest can a $20,000 CD earn now that the Fed cut rates?
An interest rate cut issued in mid-September, while in a relatively small amount, immediately opened new opportunities for borrowers. Previously saddled with high interest rates on everything ranging from mortgages to credit cards, a Fed rate cut at least increases the chances of gaining some financial relief. And that was seen in the mortgage rate space as rates there dropped to a three-year low just hours before the Fed's decision was announced.
But a rate cut can harm savers, particularly those who saw big returns with certificate of deposit (CD) accounts in recent years. At one point, some savers were even able to qualify for accounts with rates as high as 6% or 7%. And while rate cuts haven't dramatically reduced those rates, they are on a downward trend again.
Before getting started with a new CD account, then, it helps to calculate the interest-earning opportunity. This is especially important to do with a large deposit like $20,000, since savers will want to make sure the interest is worth locking their money away (and early withdrawal penalties on an account of this size can be substantial). So, how much interest can a $20,000 CD earn now that the Fed cut rates and is it worth opening? We'll break down the answers to both of these questions below.
Start by seeing how much more interest you could be earning with a high-rate CD here.
How much interest can a $20,000 CD earn now that the Fed cut rates?
Calculating the interest earnings on a CD is straightforward, thanks to the account's fixed rate. Here, then, is what savers can expect to earn with a $20,000 deposit calculated against a variety of available CD terms and rates, post-Fed rate cut, assuming no early withdrawal penalties or fees are levied against the account:
- $20,000 3-month CD at 4.25%: $209.19 upon account maturity
- $20,000 6-month CD at 4.40%: $435.26 upon account maturity
- $20,000 1-year CD at 4.20%: $840.00 upon account maturity
- $20,000 18-month CD at 4.05%: $1,227.22 upon account maturity
- $20,000 2-year CD at 4.06%: $1,656.97 upon account maturity
- $20,000 5-year CD at 3.85%: $4,158.08 upon account maturity
Savers can still earn hundreds and potentially thousands of dollars with a CD account of this size, even with interest rates declining again. But, unlike the recent past, in which waiting to act may have been beneficial with interest rate hikes on the horizon, additional rate cuts are now looming. So, if the above returns look attractive to you and you can afford to keep your money untouched in the account long enough to realize those returns, it makes sense to take action sooner rather than later.
Get started with a high-rate CD account here now.
Is a $20,000 CD account still valuable?
The answer to this question heavily depends on the individual saver. If you want to earn hundreds and potentially thousands of dollars on your money, want that interest to be guaranteed and don't want to deal with the stress and daily management that is typically involved with stock market investments, then it can still be. On the other hand, returns here are generally smaller than what can be earned with stocks, bonds and potentially real estate. And locking a five-figure sum of money away for an extended period could mean losing out on other, more readily available investment opportunities. So it's worth weighing the pros and cons here carefully. There is no one-size-fits-all answer to this question.
The bottom line
A $20,000 CD can still come with a sizable return for savers, if opened now, even with rate cuts back in play from the Federal Reserve. But action will need to be taken relatively quickly to take advantage as banks don't have to wait for additional cuts to reduce their rate offers. And with the potential currently high for another Fed rate cut at the end of October, this could happen even sooner than some savers may have anticipated.