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News this week that inflation dropped slightly in February may have been welcome news for borrowers but less so for savers. Borrowers, after all, have been contending with higher interest rates on a variety of products for much of the last two and a half years, making everything from mortgages to personal loans and credit cards more expensive. Savers, however, were able to take advantage of those higher rates via greater returns on interest-earning vehicles like high-yield savings and certificates of deposit (CD) accounts. Should that inflation rate continue to decline, then, the Federal Reserve may be motivated to resume it’s interest-rate cut campaign, reducing what savers can earn on their money.
Against this backdrop, some savers may be contemplating the benefits of locking a portion of their money away into a long-term CD (which has a term length longer than 12 months). With rates on long-term CDs over 4% still and the extended interest earning potential likely to result in hundreds and possibly thousands of dollars in returns, this could be a smart place to park an amount of money like $10,000 right now. That said, before acting it helps to know what a $10,000 long-term CD can realistically earn if opened now, in the developing interest rate climate of March 2025. Below, we’ll do the math.
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How much will a $10,000 long-term CD earn if opened this March?
Despite some cooling in the interest rate climate over the last six months, savers can still earn a substantial rate with a long-term CD. Here’s what a $10,000 long-term CD can earn now, tied to readily available interest rates and terms (assuming no early withdrawal penalties or maintenance fees):
- 18-month CD at 4.16%: $630.45 for a total of $10,630.45 upon maturity
- 2-year CD at 4.15%: $847.22 for a total of $10,847.22 upon maturity
- 3-year CD at 4.15%: $1,297.38 for a total of $11,297.38 upon maturity
- 5-year CD at 4.25%: $2,313.47 for a total of $12,313.47 upon maturity
- 10-year CD at 3.40%: $3,970.29 for a total of $13,970.29 upon maturity
So, savers can easily earn $630 or more simply by moving $10,000 into a long-term CD now.
Not only will that return be high, but it will also protect those funds from market conditions and a declining variable interest rate it would otherwise be subject to by remaining in a traditional savings account (with average rates around 0.40%) now. Still, it’s critical that savers only open these accounts with the ability to keep the money deposited untouched for the full CD term as an early withdrawal penalty, particularly on a long-term CD, can be costly and end up wiping out all (or most) of the interest earned to date. Be careful, then, to get started with the right initial deposit.
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The bottom line
A long-term CD offers savers big returns in exchange for leaving their money in an account for an extended period of time. But it’s not the only CD type to consider now. Rates are higher on short-term CDs, but the returns will be lower thanks to an earlier maturity date. Regardless of which CD term you ultimately choose, however, be sure to calculate your potential earnings (and understand your comfort level parting with the funds) before getting started. And consider looking to online banks that tend to offer higher rates and better terms for savers, which will be critical when giving up access to your money for 18 months or longer.
