Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
Long-term vs. short-term CD: What’s the difference?
What's the optimal amount of time to lock your funds away?
A CD can help you reach your savings goal with a high interest rate and guaranteed returns, but it can be tough figuring out which term is right for you. Get some help by exploring our guide on how to compare short-term and long-term CD options.
What’s the difference between a long-term and short-term CD?
Both long- and short-term certificates of deposit, or CDs, can help you save money by locking your funds away for a set period of time. However, they can be structured a little differently. Long-term CDs have terms of one year or longer while short-term CDs are locked in for less than a year.
|Features||Long-term CDs||Short-term CDs|
|Better interest rates|
|Lower minimum deposit|
|Early withdrawal penalties|
|Can renew at maturity|
Long-term vs. short-term CD: Which one is best for me?
Here’s when you may want to consider a short-term or long-term CD:
- Consider a long-term CD if… you have extra cash or assets and feel comfortable locking some of it away for a few years. If an emergency comes up, you know you’ll have access to enough money to deal with it. They’re also a good option if you’re looking to diversify your portfolio with safer investments.
- Consider a short-term CD if… you’re a first-time investor who is nervous about committing to anything long term or has no other forms of equity to bail you out in an emergency. For example, if you’re planning to go on an overseas trip in a year or need to purchase a car in three months, a short-term CD is a good way to make sure you save your money in the interim.
Compare long-term and short-term CD rates
Factors to consider
When comparing long-term and short-term CDs, the main factors to evaluate are:
- The interest rate. Keep in mind that APY stands for annual percentage yield, or the amount you’ll make in a year. That means that if you choose a term that’s shorter than a year, you’ll earn a fraction of the APY based on your term length.
- Example: You’d need to roll a three-month CD four times to get the full APY rate advertised.
- When interest is paid out. Interest for short-term CDs is usually paid out at maturity. For long-term CDs, you may have the option to have interest paid directly into the CD or into an external savings account once a month.
- Early withdrawal penalty fees. Short-term CD penalties are usually less severe than long-term CDs, which is something to keep in mind if you think you may need to dip into your funds earlier than expected.
A long-term CD will come with the highest interest rate, but committing your money for a long term can be risky without a backup source of funds for emergencies. If you’re saving for an upcoming purchase or you just need to know your money is accessible if you need it, a short-term CD is the safer option.
Frequently asked questions
More guides on Finder
Finder’s Bitcoin Predictions Report: December 2020
58% of panelists expect the Bitcoin bull run to last until at least the second half of 2021.
Best online banks for 2021
Thinking of going digital? This one’s for you.
Consumers Credit Union CD review
You need to be a member to access this credit union’s high interest rate options.
Whole life vs. variable life insurance
Two permanent life insurance policies that provide lifelong coverage, though variable life is a riskier investment option than whole life.
First Foundation Bank Online Savings Account review
No monthly fees and a competitive APY from this high-yield savings account.
TAB Bank High-Yield Savings account review
TAB Bank’s high-yield savings account has a competitive APY, but it’s probably best for truckers.
Central Bank of Kansas City High Yield Savings account review
This free account has a $1 opening deposit and earns 0.4% APY on your total balance.
Axos Bank High Yield Savings account review
Earn 0.61% APY regardless of your account balance, but watch out for overdraft fees.
Short-term vs. long-term disability insurance
Short- and long-term disability insurance offers coverage for different amounts of time and replaces a different percentage of your income, but you can buy both if you can afford it.
How to plan a road trip
Best tips for planning a road trip and saving money along the way.