6-Month vs. 12-Month CD: Where to Put $1,000 Right Now

Getting that first $1,000 in investable savings is a good milestone. But now what? Where's the best place to put that money so it continues to grow for you?

With interest rates so great right now, a CD could be an excellent way to build your savings. Folks who are just getting into CDs will likely want to start with a short-term CD, such as a 6-month or 12-month CD.

Both have similar rates right now, so which one is right for you? Here's how to decide.

How long can you live without the money?

The money you put into your CD will need to stay there until the CD matures. That takes six months for a 6-month CD and a year for a 12-month CD. If you take the money out before the CD matures, you'll get hit with a big fee, referred to as an early withdrawal penalty, that could be equal to half of your interest earnings.

To avoid losing your earnings to penalties, really consider if you might need that money before a year is up. If the answer is "yes" -- or even just "maybe" -- go with the 6-month CD.

If you won't need the money for a year, the 12-month CD is a good pick. It can sit and grow without you needing to do anything for a full year. It will also keep the same interest rate for the full duration, so if rates go down (which may or may not happen, the Fed is about as clear as mud) your CD won't be impacted until after it matures.

CD accounts roll over automatically

Even if you decide to go with a 6-month CD, you may not have to actually do anything after the six months are up. That's because CDs will roll over automatically when they mature.

You can choose to withdraw the money during the rollover grace period if you need it for something. But if you just leave it alone, it will automatically be put into a new 6-month CD at the current rate.

CDs vs. high-yield savings

You may realize that you don't want to tie up your $1,000 for even six months. In that case, you don't want a CD. You want to look for a high-yield savings account instead. The best savings accounts available right now offer rates comparable to that of a good CD, so you won't lose out on much, if any, earning potential.

Now choose the best rate

Once you know how long your CD term should be, you can shop around for a good rate. How much money your CD earns will depend on its interest rate, expressed as the APY (annual percentage yield).

Right now, the national average rate for a 6-month CD is 1.57% and the average rate for a 12-month CD is 1.81%. These are not good rates. Here's what that looks like in real money on a 6-month CD with a $1,000 deposit:

In contrast, here's what your earnings could look like if you get a top CD with a competitive rate:

The numbers in the bottom chart are clearly way better than the top chart. Thankfully, you can find a lot of great CDs with rates around the 5.00% range. These rates often come from online-only banks. You may also get good rates from a local credit union.

In the end, it doesn't really matter whether you go with a 6-month or 12-month CD. Rates are very similar, and 6-month CDs can roll over with no involvement from you. Pick whatever length of CD suits your needs (or forget it and stick with a high-yield savings account -- that works, too!).