3 long-term CD mistakes to avoid right now
If you don't have a certificate of deposit (CD) account currently open or, if you have one approaching its maturity date in 2025, don't worry. Even though interest rates on this unique savings vehicle have dropped over the last 12 months, savers can still earn a substantial return on their money by opening an account now. With rates on CDs in the 4% to 5% range currently (depending on the term and lender) savers can earn exponentially more than they would with a traditional savings account (with an average rate of 0.42%). And they can lock in today's elevated rates for 18 months or longer with select long-term CDs.
That noted, long-term CDs will only be advantageous if savers approach them strategically. And that approach means avoiding some simple but easy-to-make mistakes in today's rate climate. Below, we'll break down three to stay clear of.
See how much more you could be earning with a new, long-term CD here.
3 long-term CD mistakes to avoid right now
Here are three critical mistakes those considering a long-term CD should avoid making now:
Not taking the time to shop around
CD interest rates are on the decline. And even though they're still generally valuable, they're not quite as high as they were at this time in 2024. Understanding this, then, it becomes more important to take the time to shop around to find lenders offering high rates. This could ultimately mean turning to an online bank this January instead of those with physical branch locations as the former type tends to offer more competitive rates. Since you'll be depositing your money into an account for an extended period, you'll want to be sure that you did so with a lender that allows you to earn your greatest return and that will only be possible by exploring all potential lenders.
Start shopping for high-rate, long-term CDs now.
Depositing more than you can afford to part with
Even though in today's economic climate, rates are higher on short-term CDs than long-term ones, you'll still earn more by opting for the long-term option. Since these terms can go up to 10 years and because rates on long-term CDs are only slightly lower than short-term accounts, savers stand to earn exponentially more interest by the time the account has matured. Let's use $10,000 as an example. Savers will accrue $230 worth of interest on a 6-month CD at a 4.61% rate versus $1,330 with a 3-year CD at a 4.25% rate.
But this doesn't mean that you should deposit $10,000 – or any amount – that you can't comfortably afford to leave alone for the full CD term. Most CDs come with early withdrawal penalties and they can be steep on long-term accounts, potentially wiping out much or all of the interest earned to that point. So be sure to calculate any long-term CD deposits before getting started to ensure that you're able to part with the money for the full term.
Electing for the longest term possible
Based on the calculations demonstrated above, some savers may elect for the longest CD term available now. But don't let those big returns cloud your judgment. It will take multiple years to earn that return and, during that time, you may lose out on other, higher income-producing opportunities. Instinctively electing for the longest term possible is a mistake worth avoiding. Instead, consider laddering your funds into CDs with different maturity dates. This will allow you to lock in some of today's higher rates while still giving you flexibility to rearrange your funds in the future, when the interest rate climate may look differently than it does right now.
The bottom line
A long-term CD can be a valuable and reliable way to grow your savings in today's unique rate climate. But it doesn't come risk-free, either. By avoiding these mistakes now, savers can more easily grow their money with this account type both in 2025 and in the years to follow.