Locking your money into an 18-month certificate of deposit (CD) account can be daunting, as the account requires you to leave the funds frozen until it hits its maturity date. Withdraw it prematurely and you’ll get hit with a penalty worth all or most of the interest earned to that point. But forgoing access can be difficult to do for small amounts and even harder for those with larger, five-figure sums such as $40,000. That said, in today’s unique economic landscape, it can still make financial sense.
CDs will protect your principal in a way that investments fundamentally cannot. And you’ll enjoy the advantages of a fixed interest rate, allowing you to budget with certainty by knowing exactly what you’ll earn once the account has matured. With inflation still sticky and interest rates still high, too, it could be smart to protect your money through this current period and, in 18 months, you’ll have a better idea of the economic landscape and how to safely pivot at that point.
To understand the value of a $40,000 18-month CD, however, it helps to begin with the interest-earning potential. That’s simple to calculate, too, thanks to the fixed rate. Below, we’ll calculate the numbers savers should know before making a deposit.
Earn more interest on your money with a high-rate CD account here.
How much interest can a $40,000 18-month CD earn savers now?
Depositing $40,000 into an 18-month CD should be done strategically and with the awareness that a premature withdrawal could come with a costly fee. Here’s how much interest an account of this size and length will earn if opened now, calculated against three of the top available interest rates and the assumption that no fees are issued before maturity:
- $40,000 18-month CD at 4.10%: $2,485.05 upon account maturity
- $40,000 18-month CD at 4.15%: $2,515.66 upon account maturity
- $40,000 18-month CD at 4.20%: $2,546.28 upon account maturity
Savers can easily earn more than $2,400 with an account of this size and closer to $2,600 if they find an account with a rate of 4.20% or better. Finding these rates, however, will require some shopping around online. But with online banks often offering the most competitive rates and terms and with online marketplaces making it easier than ever to comparison shop now, this can be done quickly and effectively.
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Don’t forget about other CD terms
While transferring $40,000 into an 18-month CD will require some extended sacrifice on behalf of savers, it’s not the only CD term available nor is it the only one to consider now. Savers can secure competitive rates with 1-year CDs, too, and accounts with terms that mature under 12 months also have rates in the high 3% to low 4% range. So, it may simply be a matter of finding a term that you can easily see through to the maturity date as many CDs now come with similar or identical rates in today’s still-elevated interest rate environment.
The bottom line
A $40,000 18-month CD will produce a return ranging from $2,485 to $2,546, approximately, if opened right now. That’s a substantial, guaranteed amount of interest for savers in an economy in which long-term projections are difficult to make with certainty. But with rates on both shorter and longer terms in a similar range, savers who are committed to utilizing a CD can easily find one that works for their goals and budget and they may even be able to do so right away if they use an online marketplace to compare and contrast their options.