Buying a CD? Here’s Why You Want a Longer Term Rate

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If you’re hopping on the CD bandwagon, locking your money in for longer could really benefit you now. Find out why. 

Got some cash you don’t want to invest, but also don’t want to be tempted to spend for a while? For just this instance, have I got the bank account for you! Certificates of deposit, also known as CDs, offer you the chance to lock up your money and earn a decent rate of interest for a set period of time. Typically, you’ll find CD rates between six months to five years on offer, but you can also find shorter and longer terms. In fact, right now might be a good time to sign on for a longer term rate on a CD. We’ve seen pretty generous APYs on CDs in the wake of the Federal Reserve’s rate hikes over the last year or so, but that might be about to change.

Will the Fed stop hiking rates?

Since March 2022, the Federal Reserve has increased the federal funds rate a whopping 10 times, and as a result, interest rates on both consumer debt and consumer deposit accounts have increased. To be clear, the Fed doesn’t set those consumer rates; the federal funds rate is what banks charge each other for lending. But consumer rates are influenced by changes to it, which is why we’ve seen higher credit card interest rates and higher APYs on savings accounts, money market accounts…and CDs.

The Fed is set to meet again on June 14, and as reported by NBC News last month, it may be taking a pause on those interest rate hikes. The dreaded inflation we’ve all been struggling with since early 2022 finally seems to be on its way down, and was at 4.9% as of May’s Consumer Price Index report. If this ends up being the case, we might not have those higher rates on CDs to enjoy for much longer. So now is the time to act and lock in today’s higher rate on the CD of your choice.

A CD can grow your money and keep it safe

CDs aren’t the most flexible type of account; once you deposit your money in one and start the clock on your CD term, you won’t be allowed to withdraw your cash without penalty. The penalty could be losing a few months of precious interest earned, so it’s worth making sure you won’t need that cash for the entire term so you don’t end up missing out on that interest. The best CD rates right now are upwards of 5%, and that’s certainly nothing to sniff at. If you’re down to sign on for a longer term CD, give these a look:

Best 1-Year CD RatesBest 3-Year CD RatesBest 4-Year CD RatesBest 5-Year CD Rates

CDs also offer peace of mind for the diligent saver. There have been several big-name bank failures this year, and it’s really no surprise that a lot of people are nervous about banks. Thankfully, FDIC insurance covers many banks that offer CDs. Up to $250,000 of your money per deposit account per bank is safe ($500,000 for joint accounts). If you’re not sure whether your bank is FDIC-insured, you can check using its BankFind Suite tool.

If you’ve been considering opening a CD account, it might be a good move to act fast, while rates are still this generous — because they may not be for much longer if the Fed stops its rate hikes. Lock in a higher rate while you can.

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