Certificate of deposit rates have inched down slightly since their roaring highs of mid-2024, but many banks and credit unions still offer CDs that reward you with solid returns on your savings.
While long-term CDs typically pay higher interest rates than short-term CDs, that hasn’t been the case recently. Right now, you can find six-month and one-year CDs that pay annual percentage yields of between 4% and 4.5%. Most of the highest-yielding five-year CDs are paying around 4% APY.
But that trend may soon be reversing.
Many economists are forecasting that the Federal Reserve will trim the federal funds rate this fall, and some are anticipating additional cuts in late 2025 and early 2026. Experts say this would push down CD rates across the board, but it would likely have the greatest impact on short-term CDs.
“I think all rates will come down, but I would think the shorter-term rates will come down quicker,” says Peter Phillips, senior vice president and chief investment officer at Washington Trust Wealth Management.
Savers looking to capitalize on elevated yields before the Fed meets again on Sept. 16-17 have a decision to make. Should you snag a short-term CD or lock in a long-term rate?
Short-Term and Long-Term CDs: What to Know
When you open a CD, you’re committing to leaving those funds untouched for a specified length of time. When the CD matures, you’ll receive the full deposited amount plus interest. If you need to withdraw your money early, you’ll usually pay a penalty. CDs offer better yields than most savings accounts and similar rates to those you’d find with the best high-yield savings accounts.
Banks and credit unions offer CDs with various term lengths, typically ranging from three months to five years.
Short-Term CDs
CDs that mature in one to two years or less are generally considered short-term CDs, and they offer several advantages. They can be ideal for savers who may need access to their funds sooner or who are saving for a specific purchase or project at an upcoming date. Short-term CDs can also be a solid option if you believe interest rates may rise in the near future, and you want to reinvest your funds when those higher rates pop up.
However, that added flexibility typically means you’ll earn a slightly lower rate than you would if you were willing to lock up your funds longer.
Long-Term CDs
CDs that are locked in for three years or more are referred to as long-term CDs, and they historically pay a higher interest rate than short-term CDs. Of course, the drawback is that your money is tied up for an extended period, which can leave you vulnerable if you suddenly need additional funds. You may also regret committing to a long-term CD if interest rates rise above the rate your CD is earning.
Is a Short-Term or Long-Term CD Better Now?
Consider these factors before you decide what CD term to choose.
Interest Rates May Soon Drop
The federal funds rate has remained in the range of 4.25 to 4.5% throughout 2025, following three rate cuts in the second half of 2024. But with inflation holding relatively steady and the job market showing signs that it may be softening, the Fed appears poised to cut rates once again.
Phillips says the indicators he monitors suggest more cuts could follow, potentially dropping the federal funds rate into the mid-3% range by next summer.
That likely sends a strong message to CD shoppers that it’s time to lock in a rate now. But whether to opt for a shorter or longer term becomes a trickier decision in the current environment.
Short-term rates remain higher. As of Aug. 18, the national average rate for a one-year CD stood at 1.76%, while an average five-year CD paid 1.34%, according to Federal Deposit Insurance Corp. data. (National averages are dragged down by large brick-and-mortar banks that pay close to nothing on CDs, but they serve as helpful indicators to compare terms.)
But the short-term CD also presents a predicament. If you open a one-year CD now and rates then fall significantly, you may be left with few appealing savings options for your money once that CD matures. Plus, you can actually find some long-term CDs that currently offer yields close to what you’d get with shorter terms. For example, as of Sept. 9, Synchrony Bank paid 4.15% APY on a five-year CD, while Capital One paid 3.75% APY on its five-year CD.
“It’s always tough to be 100% accurate, especially with interest rates, but my thought would be that you want to take some opportunity here to lock in a longer-dated maturity,” says Phillips.
Inflation Remains an Uncertainty
Longer-term CDs can be more vulnerable to inflation. Despite tariff increases, inflation has been mostly holding steady, with consumer prices rising 2.7% year over year in July, according to the Bureau of Labor Statistics. However, if inflation were to increase in the future, that five-year CD may struggling to keep up with it. The Fed may also try to tamp down inflation by raising rates.
Don’t Forget Your Personal Financial Goals
Ultimately, experts say its important to first determine which CD term best fits your desired timeline and financial goals. Then you can go out and compare rates at different institutions for that length of time.
“I think it really depends on the purpose of the savings and when the funds will be needed,” says John Bliudzius, senior vice president and treasurer at DFCU Financial. “If the money is needed in six months for a specific purpose such as a home improvement project, then a short-term option makes the most sense. If the money is not needed right away, then consider opening CDs at different terms to form a CD ladder to make your investments less sensitive to future rate changes.”
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Short-Term vs. Long-Term CDs: Which Is Better Right Now? originally appeared on usnews.com
