The Federal Reserve has now cut its benchmark interest rate twice in 2024, and as you might expect, the interest rates paid on certificates of deposit (CDs), high-yield savings accounts, and money market accounts have all trended lower as a result.

However, although CD rates aren't quite as high as they were earlier in 2024, you might be surprised at how attractive they still are. Let's look at how much you can earn by putting $10,000 into a 12-month CD right now and what the biggest drawbacks are.

Are you looking to lock in today's interest rates? Click here for our up-to-date list of the best CD rates from top banks right now.

How much interest can you get from a 12-month CD today?

To be perfectly clear, CD rates aren't directly linked to the Fed's interest rate moves, and banks are free to set their own rates. But the Fed's rate moves impact how much it costs banks' to borrow money from one another, so it also tends to impact CD rates.

Our Picks for the Best High-Yield Savings Accounts of 2024

American Express® High Yield Savings APY 4.00% Rate info 4.00% annual percentage yield as of November 18, 2024 Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	APY 4.00% Rate info 4.00% annual percentage yield as of November 18, 2024	Min. to earn $0
Capital One 360 Performance Savings APY 4.00% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Oct. 23, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	APY 4.00% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Oct. 23, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
CIT Platinum Savings APY 4.55% APY for balances of $5,000 or more Rate info 4.55% APY for balances of $5,000 or more; otherwise, 0.25% APY Min. to earn $100 to open account, $5,000 for max APY Open Account for CIT Platinum Savings On CIT's Secure Website. Member FDIC.	APY 4.55% APY for balances of $5,000 or more Rate info 4.55% APY for balances of $5,000 or more; otherwise, 0.25% APY	Min. to earn $100 to open account, $5,000 for max APY

After two Fed rate cuts, you might be surprised to learn that top banks are still offering 12-month CDs with rates of 4% or more. For example, Discover® Bank is offering a 1-year CD with no minimum deposit and a 4.10% APY. Some banks on our radar pay even more -- although many have minimum deposit requirements of $500, $2,500, or some other amount.

We'll use Discover® Bank's CD as an example. In order to calculate how much you can earn from a CD with a certain APY after one year, simply multiply the amount of money you're starting with by the APY in decimal form (so, 4.10% would be 0.041). If you put $10,000 into a 12-month Discover® Bank CD, this shows that it would earn $410 in interest income and would grow to $10,410 by the time the CD matures.

It's worth mentioning that CDs typically renew automatically at the then-current interest rate unless you act. There's usually a grace period for a certain amount of time prior to maturity when you can opt out of automatic renewal. Unless you want to extend your commitment for a year, be sure to find out how long it is (seven days is common) so you can take action.

What if you need the money before maturity?

So, we've seen what happens if you put $10,000 into a 12-month CD and leave it alone. But what happens if you put money in a 12-month CD and unexpectedly need it before 12 months have passed?

Each bank has its own policy when it comes to early withdrawal penalties, but it generally involves forfeiting a few months' worth of interest (two or three months of interest is common for 12-month CDs). In certain financial circumstances, it can be worth cashing out a CD early, but it's important to be aware of the cost.

What happens after 12 months?

A 12-month CD allows you to lock in today's interest rates for a year, but that isn't exactly a long period of time -- especially if you depend on your savings and investments for income.

There's no guarantee that you'll be able to get a similar interest rate on another CD after your 12-month CD matures. And if the Fed keeps cutting its benchmark rate (as it's widely expected to do), it's likely that 12-month CD interest rates will be significantly lower a year from now.

The bottom line is that a 12-month CD can be an excellent place to put money you'll need in the not-too-distant future or that you might want to re-invest in something else (like stocks) in a year.

But if you're planning to use CDs to create a reliable income stream for day-to-day expenses, it could be a smart idea to look at a CD with a longer maturity, such as a 5-year CD, or to create a CD ladder to achieve a combination of flexibility and stability.