Is $100,000 Too Much to Put Into a CD?

Although certificate of deposit (CD) rates are starting to fall now that the Federal Reserve is cutting interest rates, there are still good deals to be had. So you may be interested in opening a CD sooner rather than later.

You should know that some CDs have a minimum deposit requirement. That could be $500, $1,000, or $5,000, depending on the bank.

You generally do not need $100,000 to open a CD. The minimum deposit requirement is usually much lower. But if you have $100,000 to your name, you may be wondering if that’s too much money to put into a CD. And the answer is, it depends.

When $100,000 actually belongs in a CD

There aren’t many situations where it makes sense to put $100,000 into a CD. With a sum that large, you’re usually better off investing your money. The stock market has a long history of outperforming CDs.

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Over the past 50 years, the S&P 500’s average annual return has been 10%. We all know that CDs don’t offer nearly the same return, even when CD rates are high. But if you put $100,000 into a stock portfolio that gives you a 10% annual return, in 25 years, it’ll be worth almost $1.1 million.

Even if you manage to get 4% out of a CD portfolio during that time, your $100,000 will only be worth about $267,000. That’s a huge difference.

However, to do well in the stock market, you need to be willing to invest on a long-term basis — ideally, 10 years or longer. That’s because you need to give yourself time to ride out market downturns. So if you have $100,000 earmarked for a near-term goal, then a CD could be a good choice.

Let’s say you’re buying a home in an expensive part of the country, and you need a $150,000 down payment but you only have $100,000 so far. If you think it’ll take you 18 to 24 months to save the remaining $50,000, then it’s not a bad idea to park your $100,000 in a 12-month CD to score a nice return on it. In this situation, stocks are a poor choice, because if the market does poorly in the short term, you risk ending up with less than your original $100,000.

But for the most part, there is a limit to how much you should put into a CD. You’ll need to think about what you plan to use your money for when making your choice.

Consider a CD ladder if you have $100,000 to work with

If you come to the conclusion that it’s best to keep $100,000 in a CD, you may not want to open just one. That’s because $100,000 is a lot of money. And putting it into a single CD means cutting off access to a large sum until it matures. (You could tap your CD early, but then you’ll face a costly early withdrawal penalty.)

A better bet with $100,000 is to split that money up and create a CD ladder. You might, for example, open four CDs worth $25,000 apiece and have them mature at three months, six months, nine months, and 12 months. Or play around with different intervals. With a sum that large, it’s good to have options.