In the midst of the hoopla surrounding a rate cut, it doesn't diminish the fact that some savings options are still excellent choices to consider. APYs on all savings products will likely dip slightly following the Fed's decision to cut the federal funds rate, but it doesn't mean you can't earn a good return.
If you're sitting on $40,000 and want a risk-free way to grow your money, CDs and high-yield savings accounts are smart options to consider. Both offer you guaranteed returns thanks to FDIC protection up to $250,000.
With these things in mind, here's how much you can earn by saving $40,000 with each account. I also cover the three things you should consider before setting up an account, and which option works best for different risk profiles.
How much can you earn with a $40,000 deposit?
Let's start with why so many savers turn to these two options: They generate a healthy return effortlessly. If you were to open a high-yield savings account with one of our top choices, Newtek Bank, you would earn a 4.35% APY.
Now, that's sure to drop in the near future if the Fed starts cutting rates. However, even with a slight dip, you'll still outpace inflation. And if you store $40,000 in this account, here's how much you can earn in interest with the 4.35% APY:
- 1 year: $1,750
- 2 years: $3,559.69
- 3 years: $5,450.36
- 4 years: $7,427.25
- 5 years: $9,490.55
Therefore, you can earn almost $9,500 effortlessly by parking your money in a high-yield savings account for five years. If Newtek Bank isn't the right choice for you, you can use this Bankrate tool to find savings options that align with your needs:
Now, let's turn our attention to CDs. The best CD rates are usually short-term, think six months to a year. You can also earn a robust return on long-term CDs. Lafayette Federal Credit Union offers a five-year CD with a 4.28% APY.
If you put $40,000 in a five-year CD with Lafayette, you could earn $9,324.77 in interest for doing nothing. It isn't as much as you would earn with a high-yield savings account on the surface, but CDs also have another perk we'll discuss in a minute.
If you don't want to lock in a long-term CD, you can shop for the best options using this Bankrate tool.
Before signing up for either account, here are three things smart savers should know.
1. APYs will change
With the Federal Reserve potentially cutting interest rates, it lowers the returns you'll earn on a CD or high-yield savings account. The difference is that with a CD, you can lock in your rate now and maintain it through the term. CDs feature fixed interest rates, so if the Fed cuts rates again in the future, locking one in now maximizes your returns.
Meanwhile, high-yield savings accounts feature variable interest rates. It means if the Fed follows with another rate cut, it will lower how much you can earn.
APYs are not the only thing to consider when choosing between these accounts. Another option concerns how comfortable you are with not having access to your cash.
2. Do you need liquidity?
Typically, my savings strategy involves keeping my emergency fund in a high-yield savings account. That way, if an emergency arises, I can transfer funds and have quick access to my money.
CDs don't share that same luxury. The term you lock in the bank expects you to fulfill. I use CDs for short-term savings goals because they can keep you on track since you can't withdraw your money without a penalty.
If you haven't used CDs before, here's what I recommend: Start by tucking some money away in a short-term one, think three to six months. Doing so allows you to maximize returns while rates are still high and you'll have quick access back to your cash.
Another option is to consider a no-penalty CD. As its name implies, you can withdraw money once you reach the vesting period. Depending on the bank, it is usually one week to one month after you open it.
3. How long are your savings goals?
Another key consideration is how long you want to store your money in one of these accounts. With high-yield savings accounts, you're free to make changes anytime you need to, whether it's one month or 10 years into the future.
That's a nice perk to have, as you can pivot to other strategies fast. The same doesn't apply to CDs.
Unless you choose a no-penalty CD, you're locked into your term. The good news is you don't have to worry about your rates changing, but you're also sacrificing access to that money until your term expires.
Say you lock in a five-year CD, but in year three want to move more of your money to an investment account. With a CD, you can do so, but breaking it open requires months of interest earned in penalty fees, losing you money in the process.
Therefore, pay close attention to your savings goals and ensure the account you choose meets them.
What's the best savings strategy for me?
It depends on your needs and savings goals. This table breaks down how each account differs:
Factor |
High-Yield Savings |
CD |
|---|---|---|
Flexibility |
✅ High |
❌ Low |
Higher guaranteed rate |
❌ No, because rates are variable |
✅ Yes (fixed rates) |
Early access |
✅ Yes |
❌ Penalty applies |
Good for long-term |
❌ Not ideal due to fluctuating rates |
✅ Yes, if you won’t need the cash |
High-yield savings accounts are for short-term savers who want to build an emergency fund or need quick access to their cash. CDs work best for established savers looking to park a chunk of their money and forget about it until the term expires.
In either case, both of these accounts can help you reach your savings goals. The key is paying attention to your savings needs and choosing the right account to match them. Doing so helps you outpace inflation while earning a robust return.
