$10,000 long-term CDs vs. short-term CDs: Which is better to open now?
If you've been looking for a secure way to invest your money lately, a certificate of deposit (CD) account may be worth exploring. While interest rates on CDs have fallen in recent months, they're still elevated, particularly compared to the sub-1% rates many savers would have been offered in 2020 or 2021. Now, savers can get a rate between 4.50% and 5% or even higher, depending on the bank and the CD term (or length).
That latter factor is a critical one for those considering a CD, particularly for those looking for a place to store a five-figure sum of money. While a $10,000 deposit into either a long-term or short-term CD can be beneficial for savers, it helps to know which of the two may be better to open right now. And, for many, that could be the long-term option. Below, we'll detail why.
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$10,000 long-term CDs vs. short-term CDs: Which is better to open now?
Not sure which CD type is better for your $10,000? Here are three reasons why a long-term CD may be the preferred option:
A bigger return
Arguably the most important reason to deposit $10,000 into a long-term CD instead of a short-term one? The much bigger return you stand to make upon account maturity. While a 6-month CD technically has the higher interest rate now (4.61% versus a 3-year CD's 4.25%), that higher rate will easily be negated by the short account life. With a $10,000 deposit, you'll earn around $230 with a 6-month CD and around $1,330 with a 3-year option. That's approximately $1,100 more earned simply by leaving your funds untouched for an additional 30 months. So, if you can afford to do so, a long-term CD is the better way to earn a bigger return now.
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Extended financial protection
No matter the CD term you ultimately choose, the rate you open the account with will be fixed. But only one will offer extended financial protection. With long-term CD terms ranging from just 18 months to 10 years, you'll have plenty of ways to protect your money for a lengthy period. By doing so, not only will you not have to worry about wider changes in the economy or rate climate, but you'll also be able to avoid having to make hasty decisions about where to transfer your money in a few months, as would be the case with a short-term CD set to expire in 90 days, approximately. This peace of mind can then allow you to focus on other, more important financial concerns in the interim.
Predictability amid economic uncertainty
As anyone who has watched the economy even partially in recent years, it's hard to predict what will happen. Inflation was expected to come down earlier in 2024 than it ultimately did. And then it rose again in the final months of the year. Interest rate cuts were supposed to continue into 2025 but that now appears unlikely. And with geopolitical tensions still high and a new, incoming presidential administration, additional economic changes are inevitable for this year and beyond.
It makes sense, then, to add predictability amid this uncertainty with a long-term CD. With this type, you'll be able to precisely determine what your $10,000 deposit will have grown to — and the money will be guaranteed, as long as you don't withdraw it early. It will even be FDIC-insured (up to $250,000), making a long-term CD one of your safest investments in an otherwise unpredictable economic terrain.
The bottom line
If you're looking for predictability amid economic uncertainty, extended financial protection and the largest return you can get, a $10,000 long-term CD is more advantageous than a short-term one in the same amount right now. That all noted, early withdrawal penalties on a long-term CD can be steep, potentially eliminating most or all of the interest earned to date. So it's critical that whatever CD term you ultimately choose you're able to keep the funds in the account for the full term. If not, a high-yield savings account may be the better alternative.
