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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.

FeaturesLong-term CDsShort-term CDs
Monthly fees
Better interest rates
Lower minimum deposit
Early withdrawal penalties
Federally insured
Can renew at maturity
Compare the top CD rates available today.

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

Name Product 6-month APY 1-year APY
Discover CDs
0.25%
0.55%
Start saving with $2,500 and enjoy flexible terms from 3 months to 10 years with no account fees.
CIT Bank Term CDs
0.1%
0.25%
Choose from a range of terms with no maintenance fees and $1,000 minimum to open.
Fidelity CDs
0.05%
0.1%
Vanguard CD
0.05%
0.1%
Chase CD Relationship
0.05%
0.05%
Citi CD
0.05%
0.1%
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Compare up to 4 providers

Name Product 3-year APY 5-year APY 7-year APY 10-year APY
Quontic Bank CD
1.1%
1.2%
Lock in a high rate. Minimum of $500 required to open. Open your account in 3 minutes or less
State Exchange Bank CD
Locally-owned independent community bank. FDIC insured. No fees.
CIT Bank Term CDs
0.4%
0.45%
Choose from a range of terms with no maintenance fees and $1,000 minimum to open.
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Compare up to 4 providers

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.

Bottom line

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

How much more interest will I earn with a long-term CD than a short-term CD?

It depends on the bank you use, the amount you invest and the difference in term length. As a point of reference, if you were to deposit $1,000 into a CD at Ally Bank at the time of writing, you’d earn 0.75% APY on a three-month CD and 2.60% APY on a three-year CD.

How old do you have to be to open a CD account?

You’ll need to be a legal adult to open a CD — 18 in most states. However, an adult can open a CD and gift it to a minor.

How can I find out exactly how much I’ll earn?

Use our CD calculator to see how much your savings will grow.

Picture: Shutterstock

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