Is a 1-year or 5-year CD term better?

Locking in a great certificate of deposit (CD) can guarantee rates of more than 4.00% or even 5.00% APY for your entire term today. 

But with term lengths ranging from as little as three months to as long as 10 years, it's important to choose the right CD term for you. High rates won't last forever, after all, so you want to lock in a great APY for as long as possible without risking a penalty fee for withdrawing early. 

Among CDs today, two popular term lengths are 1-year CDs and 5-year CDs. Both can help savers maximize interest, but it's important to know the differences to determine the best account for you. Start your search by comparing today's top CD rates now.

Is a 1-year or 5-year CD term better?

While choosing a CD term ultimately comes down to your individual savings goals, 1-year CDs and 5-year CDs can also differ in terms of overall value.

For one, consider the interest rate. One-year CDs offer some of the highest deposit rates you'll find today; many earn over 5.00% APY and even as much as 5.35% or 5.40% APY. Five-year CDs, on the other hand, aren't quite as lucrative. Top 5-year CDs today range around or above 4.50% APY.

It's also important to think about your total interest earnings, though. One-year CDs may have much higher rates, but it's for a shorter time period — with no guarantee you'll be able to lock in a comparable rate when that CD matures. But when you lock in a 5-year CD, you'll still earn today's top rates throughout the entire five-year period. 

When you look at overall earnings throughout the entire CD term, the interest you earn can be more comparable than it may seem based on rate alone. Start comparing top CD rates across terms here now.

When to choose a 1-year CD

Here are a few cases in which you may prefer a 1-year CD:

• You have a short-term savings goal: If you're planning to use your CD deposit for a purchase in the relatively near future, the shorter 1-year CD term can make most sense. Penalty fees may cost a portion, or even all, of your interest earned, however, so it's crucial to align your CD term with your ultimate savings goal.
• You want the absolute highest rate: If you're determined to lock in the highest interest rate you can, 1-year CDs are the account type you should seek out today. Many of these CDs offer rates higher than other CD terms and higher than high-yield savings accounts. Locking in a CD rate of 5.30% to 5.40% APY today could help you add hundreds to your balance in only a year.
• You may want to switch your account later: It's impossible to predict where interest rates could go in the future, but a shorter CD term gives you the flexibility to make changes if you need to. If you think there's a chance that rates could continue to rise over the next year, you may feel secure in knowing that you can withdraw your balance after just 12 months and move it to a higher-earning account.

When to choose a 5-year CD

On the contrary, here are some times when a 5-year CD could make most sense:

• You won't need your money for a while: If you know you have a very long timeline before you'll need to access your money (and you have a separate account for any emergency expenses), a 5-year CD could make sense. You can guarantee your money is safe without any market risk, and you can enjoy the built-in buffer of a penalty fee keeping you from spending it on anything outside your original goal.
• You're worried about rates falling: Though rates are rising today, they will have to come back down eventually. If you're concerned that rates could fall in the future, you may find peace of mind in locking in a great long-term CD rate today. Even if it's not as high as other options, you can still boost your balance by a large sum with an interest rate around 4.5% APY today.
• You want to build a CD ladder: There's always the option to incorporate both short- and long-term CDs into your savings plan. When you build a CD ladder, you can put a portion of your balance into CDs of varying terms (1, 2, 3, 4 and 5-year CDs, for example) so you get the chance to lock in today's rates while still having flexibility to move a portion of your savings at different intervals.

Want to compare more short- and long-term CD options today? Find top rates available now here!

The bottom line

Today's high-yield CDs have a lot to offer savers who want to keep their balances secure while still earning interest. But choosing between a shorter-term 1-year CD and longer 5-year CD can depend a lot on what exactly you're saving for and your goals for the account. If you're unsure which is right for you, consider speaking with a financial advisor who can help walk you through your options and how they fit within your individual savings plan. And before you decide, don't forget to compare each of the best CD rates that you can qualify for now.