How you can earn more with a long-term CD
When it comes to investing your money, you want to find an option that yields a good return while also keeping your investment safe. For many people, one option that fits the bill is a certificate of deposit (CD). CDs offer higher interest rates than savings accounts (even many high-yield savings accounts) and they provide similar protections, including federal deposit insurance.
CDs come in different terms, typically ranging from three months to five years. You're able to secure a high interest rate by agreeing to keep your funds in the account for the duration of the term. A long-term CD, in particular, can be a great way to earn higher returns on your savings, for several reasons.
Compare current CD rates here to see how much you could earn.
How you can earn more with a long-term CD
A long-term CD is good for investors seeking solid returns for the following reasons.
They usually have higher interest rates
"Historically, longer-term CDs have higher rates," says Joe Marques, CFP, a wealth advisor and co-CEO of Bolin Creek Wealth Advisors. "That is, you should earn a higher rate since you are 'locking up' your money for longer."
At the moment, short-term CDs tend to offer marginally higher rates than long-term ones. That said, Bankrate data shows that from 1984 to 2023, long-term CD rates typically outperform short-term rates, sometimes by as much as nearly 3%. And the longer you keep your funds in the account, the more you'll earn, even if overall rates drop.
Your rate won't go down
Your rate is typically locked in when you open a CD. That means regardless of what happens with interest rates, your return remains the same for the duration of the term. The longer the term, the more you're able to capitalize on this.
Overall interest rates are high at present, with some CDs offering APYs of 5% or more. That makes now a great time to lock in a high APY before rates begin to fall.
Check out today's top CD rates now to find an account right for you.
Penalties discourage early withdrawals
CDs usually charge penalties if you need to access your money before the term expires. This penalty is typically a percentage of the interest you've accrued to date. This can dissuade you from the temptation to withdraw funds early and miss out on the CD's full earning potential.
Early withdrawal penalties can "be a feature that offers discipline for a saver," says Tim Melia, CFP, MBA, a financial planner and founder of Embolden Financial Planning. "If they had a goal at the start of the term, they will need to stick with the CD to avoid penalties, which may help them stay focused on the original savings goal."
The bottom line
Overall, long-term CDs are a smart investment option for people seeking a high-yield, low-risk investment option. Longer CD terms usually net you higher interest rates, which means more earning potential. And by locking in an APY while rates are still high, you can guarantee these earnings no matter what happens in the larger interest rate environment.
