Long-term CDs: Pros and cons to know

Following the Federal Reserve's decision to pause federal interest rate hikes for the first time since last March, long-term CDs have become a lot more appealing for savers. Though we can't predict the future, some experts believe today's rates could be near the maximum that banks will offer on deposit products. Plus, even if federal rates do remain high for a while, they'll inevitably fall again in the future.

That's where a long-term certificate of deposit (CD) may be useful. These multi-year fixed-rate accounts allow you to lock in a high interest rate today and continue earning that APY on your principal until the account matures. 

Before you open a new long-term CD account though, it's important to understand all the details of how you can benefit.

Compare today's top CD rates here now and start earning more on your savings.

Pros of long-term CDs

These are some of the best reasons to lock in a long-term CD now:

Lock in a great interest rate

Today's long-term CD rates are better than they've been in years, with some of the highest-earning online accounts offering more than 4% and even up to 4.5% APY. If you believe that interest rates could fall in the near-term, you can lock in a great rate today to maintain solid earnings on your balance over time.

Say you deposit $10,000 in a five-year CD today earning a 4.30% APY. When that CD matures, you would have about $12,343 in total, earning more than $2,000 in interest. 

Here are some examples of great long-term CD rates available now:

• Popular Direct 5-year CD: 4.53% APY
• Barclays 5-year CD: 4.35% APY
• Bread Savings 5-year CD: 4.25% APY

Explore more of today's top CD interest rates here now!

Good returns with security

Not only can you get a great rate with a long-term CD today, but you can also guarantee your deposit is secure. 

Deposits you make into certificates of deposit are FDIC-insured up to $250,000 limits per depositor and per institution. If you have more than that amount, you can also choose to spread out your balance with different accounts and different banks. 

FDIC insurance protects your money against bank failure. Plus, deposit accounts like these are not subject to market fluctuations. With the fixed rate and fixed term, you can plan upfront and know exactly how much you'll earn with your long-term CD over the lifetime of the account.

Cons of long-term CDs

Locking in a long-term CD isn't the right choice for everyone. Here are a few drawbacks to also consider.

Limited access to your cash

When you open a long-term CD, you should make sure you're willing to part with your cash over the entire term length. 

CDs carry early withdrawal penalties, which can cost a portion (or even all) of your interest earned. Plus, you'll need to withdraw the entire balance from your account, forfeiting any potential interest you would have earned over the remainder of the term. There are some no-penalty CDs that don't charge this fee, but they're typically not available in longer term lengths. 

If you know you might need to access your deposit sooner, consider a short-term CD with a term length that better fits your goals or a high-yield savings account with the flexibility to withdraw at any time.

Not the highest-earning CD

Historically, longer-term CDs have offered the highest rates among any CD options — but that's not always the case today. Thanks to the unique economic environment we're in, you'll find the absolute highest yields among short-term CDs. Some offer as high as 5% to 5.25% APY for six month or one year terms. 

However, long-term CDs may still offer the better deal depending on how rates move in the future. If they remain high for a while, you could lock in a great short-term CD today and renew the CD for a similar rate in a year. But if rates move down, short-term CD rates will follow. Long-term CDs offer more of a guarantee, no matter what the overall rate environment looks like.

Find out how much you can earn with today's best CD rates here.  

The bottom line

If you're debating whether to lock in a long-term CD for several years at today's high interest rates, your personal goals and situation can help you decide. If you believe interest rates are near a peak — or you're satisfied with what you can earn on a long-term CD today — you might be ready to open your account and start building interest. Just make sure you understand the restrictions on your deposit and the potential opportunity cost compared to other account options. 

Start boosting your savings with a CD and compare the best rates available right now.