Why a long-term CD is better than a short-term one this October
Certificates of deposit (CD) accounts are generally a smart part of any saving strategy. But, in recent years, they've become an indispensable element. Thanks to decades-high inflation and interest rates that soared in an attempt to tame it, rates on interest-earning vehicles like CDs and high-yield savings accounts surged. In a relatively short time period, rates on CDs went from around 1% or less to 4% to 5% and sometimes higher.
With inflation now much cooler than it was, however, and the first of a series of interest rate cuts now issued, the value of a CD may be in question. For these savers, it's important to understand which specific CD term (or length) is beneficial to them now. As rates cool, then, there's a compelling argument to be made for long-term CDs, in particular. Below, we'll detail three reasons why a long-term CD (longer than 12 months) is better than a short-term one this October.
See how much more you could be earning on your money with a top CD here.
Why a long-term CD is better than a short-term one this October
Here are three big reasons why a long-term CD could be better for your savings than a short-term one if opened this month:
Comparable interest rates
It can be tempting when opening a CD to pursue the highest rate option possible right now. But, when shopping around, you'll quickly see that long-term CDs have comparable interest rates to short-term ones. So don't get tempted with a 5.10% rate on a CD that will expire in just six months when you can lock in a rate of 4.75%, for example, for a full year or a 4.40% rate for an 18-month CD. Sure, these rates are not quite as high as the short-term options, but a simple calculation proves that you'll earn a bigger return by pursuing the latter types.
Get started with a top long-term CD here.
Long-term interest-earning potential
CD interest rates are locked no matter the term. So, that 5.10% rate mentioned above will remain the same for the full six months, no matter what happens in the wider rate climate during that time. But the 4.40% on 18 months will also be locked as will a 4.20% rate on a 2-year CD. And with multiple rate cuts likely for the rest of 2024 and into 2025, it makes sense to lock in the highest rate for the longest amount of time right now. A long-term CD offers you that ability.
Financial security
There are multiple economic considerations to account for now that could cause your money and investments to fluctuate as September's rate cut was just one part of this equation. Unemployment figures can also affect your investments as can geopolitical concerns abroad and a U.S. presidential election just weeks away. Amid this potential volatility, then, it makes sense to add some financial security. A long-term CD can offer just that, as it will be unaffected by the market, politics and Fed actions (or lack thereof). Just don't wait too long to act, either, as CDs may not be as advantageous in a few months as they are right now.
The bottom line
For many savers, a long-term CD is better than a short-term one this October. With comparable interest rates to the best short-term CDs, long-term interest-earning potential in the face of predicted rate reductions and financial security amid an evolving and potentially volatile economic climate, a long-term CD makes sense for many savers now. Just make sure to only deposit an amount of money that you're comfortable leaving in the account for the full term or you could risk having to pay an early withdrawal penalty to reaccess your money.
