Should you open a long-term CD after your current account matures?
In the interest rate climate of 2022 through much of 2024, the reasons for opening a certificate of deposit (CD) account were clear. An elevated interest rate combined with a fixed structure allowed savers to earn exponentially more on their money than they would have just a few years earlier. And many savers did, turning to these accounts to protect and grow their funds in an inflationary environment. This led to some savers being able to earn thousands of dollars on their money.
For many, however, the maturity date of their current CD account is quickly approaching, possibly before the end of 2024. This leads to a series of questions about the next steps, mistakes to avoid and a pending decision about what other CD term may be worth opening after the current account matures. Right now, there's a strong argument to be made for opening a long-term CD next. Below, we'll explain why.
See how much you could be earning with today's long-term CD rates here.
Should you open a long-term CD after your current account matures?
Each saver's financial situation is different and, for some, the next step may be moving their funds into a high-yield savings account or a short-term CD after their current CD matures. For others, however, it can be worth opening a long-term CD instead. Here's why:
Long-term protection: Long-term CD terms can last anywhere from 18 months to 10 years. That will offer significant, long-term protection for your money. That protection is particularly important to have now heading into 2025. Inflation just rose in October, interest rate cut predictions are uneven and other economic factors could all affect your investments and savings. Adding a layer of protection with a locked CD rate for the foreseeable future, then, makes sense for many.
Get started with a long-term CD here.
Predictable returns: Sure, high-yield savings account interest rates are a bit higher than long-term CDs right now (think 4.25% for a 2-year CD versus 4.85% for a high-yield account). But that high-yield savings account rate is variable and likely to change multiple times throughout those two years, making it impossible to predict your returns. And if rates continue to fall, so will the interest-earning capability of the account. Long-term CD interest, however, can be calculated with precision, which makes these accounts a key addition for savers otherwise subject to the volatility of the current rate climate.
Penalties discourage overspending: That elevated long-term CD interest rate won't come without a personal investment on behalf of the saver. If you attempt to regain access to your funds before the maturity date, you'll have to pay an early withdrawal penalty. And that can be steep on long-term accounts, as they often are calculated by how long the money has been accruing interest. Still, this isn't necessarily a negative factor because penalties can discourage overspending, particularly during the holiday season and other times of the year when you tend to spend more than you should.
The bottom line
If your CD account is approaching it's maturity date, or if you're already in the CD grace period, then you'll want to decide on what to do with the account funds relatively quickly. As the above reasons demonstrate, many savers may find it beneficial to move that money into a long-term CD now. Just be sure to pick the right CD term if you do in order to avoid paying any unnecessary early withdrawal penalties if you can't keep the funds untouched for the full term.
