I Only Have $500 to Invest. Is Opening a CD Worth It?

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

You don’t need to be rich to put your money to work. See why a CD is still worth opening even if you don’t have a lot to invest. [[{“value”:”

There’s this impression when it comes to finance that some products are only for people with a lot of money. I hear this about investment accounts a lot, and I’ve even heard it about certificates of deposit (CDs).

I’m here to tell you: Compound interest is for everyone, friends.

With $500 to deposit, you can definitely find a lot of great CDs with competitive rates. Sure, a few will have deposit minimums outside your range, but you still have plenty of options. Furthermore, any amount of money is a good amount to put to work — even if it’s “only” $500.

Even a small CD can generate income

One of the arguments I’ve heard from folks is that you won’t make very much money, so what’s the point? I’ll admit, I do see some of the thought behind this perspective.

If you get a competitive rate, here’s what a 6-month CD can return on a $500 investment:

If you know you can do without that $500 for a full year, here’s what a competitive 12-month CD would earn:

So, yeah, I get it. You may not get very excited about $14 or even about $28.

But guess what? You didn’t have to do jack for that money. It basically made itself. All you had to do was leave your $500 alone, and it paid you $14 to do nothing.

Sock drawers earn 0% APY

To put your options into perspective even more, answer this: How much money are you going to earn from that $500 if it’s just sitting in your sock drawer?

Spoiler: Sock drawers don’t earn interest.

Similarly, you don’t want to leave that money in your checking account. The national average interest rate for a checking account is just 0.08% (and that’s assuming your checking earns interest at all, which isn’t the norm).

Your savings account might not be a great place for the money, either. The national average for those is just 0.46%. Here’s what these numbers look like in terms of your return:

If you weren’t excited about $28 in a year, I bet you’d be really thrilled by that $0.40 you earn from your checking account!

Inflation eats all things

To be really honest, I’m actually being generous by saying your sock drawer’s APY is 0%. In reality, inflation is eating away at your money so much that the sock drawer’s APY is essentially negative.

In other words: Your $500 will actually be worth less than $500 after a year if you leave it in a sock drawer (or low-yield account). You need to at least keep up with the rate of inflation.

If you’re not sold on opening a CD, consider a high-yield savings account instead. Right now, you can find competitive rates comparable to our favorite CDs, plus you can withdraw your money — or deposit additional money — whenever you want.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Brittney Myers has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

“}]] Read More