The Federal Reserve cut its benchmark interest rate twice in 2024 and, as expected, the interest rates paid on certificates of deposit (CDs), high-yield savings accounts and money market accounts have all been on a downward trend.

However, even though CD prices aren’t as high as they were in early 2024, you might be surprised at how attractive they still are. Let’s see how much you can earn by investing $10,000 in a 12-month CD right now and what the biggest drawbacks are.

Are you looking to maintain today’s interest rates? Click here for our up-to-date list of the best CD rates from the best banks right now.

How much value can you get from a 12 month CD today?

To be perfectly clear, CD rates are not directly linked to Fed interest rate movements, and banks are free to set their own rates. But Fed rate changes impact the cost that banks borrow from each other, and therefore tend to impact CD rates as well.

Our picks for the best high-yield savings accounts of 2024

American Express® High Yield Savings APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 18, 2024 Member of the FDIC.	APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 18, 2024	Min. earn $0
Capital One 360 ​​Performance Savings APY 4.00% Pricing information Check the Capital One website for the most up-to-date pricing. The Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates are subject to change at any time before or after account opening. Member of the FDIC.	APY 4.00% Pricing information Check the Capital One website for the most up-to-date pricing. The Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates are subject to change at any time before or after account opening.	Min. earn $0
CIT Platinum Savings APY 4.55% APY on balances of $5,000 or more Pricing information 4.55% APY on balances of $5,000 or more; otherwise, 0.25% APY Min. earn $100 to open an account, $5,000 for maximum APY Member of the FDIC.	APY 4.55% APY on balances of $5,000 or more Pricing information 4.55% APY on balances of $5,000 or more; otherwise, 0.25% APY	Min. earn $100 to open an account, $5,000 for maximum APY

After two Fed rate cuts, you might be surprised to learn that major banks still offer 12-month CDs with rates of 4% or higher. For example, Discover® Bank offers a one-year CD with no minimum deposit and a 4.10% APY. Some banks on our radar pay even more, although many have minimum deposit requirements of $500, $2,500 or another amount.

We will use the Discover® Bank CD as an example. In order to calculate how much you can earn on a CD with a certain APY after a year, simply multiply the amount of money you start with by the APY in decimal form (so 4.10% would be 0.041). If you put $10,000 into a Discover® Bank CD with a 12-month term, that shows it will earn $410 in interest income and grow to $10,410 by the time the CD matures.

It’s worth mentioning that CDs usually renew automatically at the current interest rate unless you take action. There is usually a grace period for a certain amount of time before the due date during which you can opt out of automatic renewal. Unless you want to extend your commitment for a year, make sure you know how long it will last (seven days is common) so you can take action.

What if you need money before the deadline?

So we’ve seen what happens if you invest $10,000 in a 12-month CD and leave it alone. But what happens if you put money into a 12-month CD and need it unexpectedly? Before 12 months have passed?

Each bank has its own policy on early withdrawal penalties, but this usually involves losing a few months’ interest (two or three months’ interest is common for 12-month CDs). In some financial circumstances, it may be worth cashing out a CD early, but it’s important to be aware of the cost.

What happens After 12 months?

A 12-month CD lets you lock in current interest rates for a year, but that’s not exactly a long time, especially if you rely on your savings and investments to make a living.

There is no guarantee that you will be able to obtain a similar interest rate on another CD after your CD matures in 12 months. And if the Fed continues to cut its benchmark rate (as is widely expected), it’s likely that 12-month CD interest rates will be significantly lower a year from now.

The bottom line is that a 12-month CD can be a great place to put money you’ll need in the not-too-distant future or might want to reinvest in something else (like stocks) a year from now .

But if you’re considering using CDs to create a reliable income stream for everyday expenses, it might be a good idea to consider a CD with a longer maturity, such as a 5-year CD, or to create a ladder CD to achieve a combination of flexibility and stability.