Short-Term vs. Long-Term CDs: Which Is Better Right Now? | Banking Advice
Key Takeaways
- If the Fed raises rates this fall as anticipated, CD rates will likely climb as well.
- Short-term CD rates may see a more significant bump than long-term rates in the near future.
- Locking in short-term CDs if rates increase could allow you to earn more interest now while keeping your options open when those CDs mature next year.
Certificate of deposit rates have been quietly inching back up in 2026, and an anticipated rate increase by the Federal Reserve is likely to accelerate that momentum in the back half of the year.
While CD yields aren’t expected to climb back to their roaring highs of mid-2024, the current environment presents an opportunity to snag rates as high as 4.5% on both shorter and longer terms.
How are savvy savers approaching the situation? Experts say you should be ready to pounce on short-term CDs if rates rise this fall, and then prepare to potentially shift those funds into longer-term products when they mature.
Here’s a look at what you should know about short-term and long-term CDs, and where you might find the best value for your funds.
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.
The Current CD Rate Environment: How Terms Compare
The federal funds rate has remained unchanged throughout 2026, holding steady in the range of 3.50% to 3.75% after the Federal Reserve implemented a flurry of rate cuts in late 2025. Interest rates on products such CDs and high-yield savings accounts generally move in the direction of Fed rates.
Indeed, rates across CD terms dipped between August 2025 and May 2026, according to FDIC data. A U.S. News analysis of CDs at a dozen institutions that typically offer the highest yields found that average six-month rates fell most dramatically, dropping from 4.09% APY to 3.59% APY during that period.
But CD rates began reversing course near the midpoint of the year, as economic conditions and Fed messaging led forecasters to alter their expectations. Where observers previously anticipated further cuts, many now are predicting a rate hike of at least 0.25% coming as early as September.
Institutions are already elevating their rates ahead of the September Fed meeting. In the last week of August, roughly 82% of all changed CD rates moved higher, says Mary Grace Roske, head of marketing and communications at CD Valet, a comprehensive CD marketplace that provides verified CD rates from federally-insured banks and credit unions.
“The bottom line? CD rates aren’t just holding steady – they’re starting to move up again as we enter September,” says Roske.
She says competition for deposits could push CD rates higher even if the Fed doesn’t immediately raise its rate.
While banks are offering up to 4.50% APY on five-year terms, shorter CD terms are still providing higher yields on average. That continues a pattern that has been in effect for several years, in which rates for shorter terms outpace those for longer terms. Normally, it’s the longer terms that pay higher yields because they lock up funds an extended period.
“This is unusual,” says Kenneth Carow, professor of finance at Indiana University’s Kelley School of Business in Indianapolis. “Most of the time, longer CD rates are higher than short-term rates, but this inverted curve is due to investor expectation that inflation is high now but will likely decrease in the future.”
Is a Short-Term or Long-Term CD Better Now?
Consider these factors before you decide what CD term to choose.
Interest Rates May Rise
CD rates are relatively high across all terms, which allows flexible CD shoppers to be selective in their hunt for top yields. That said, with the Fed poised to potentially raise rates this fall, even higher rates may be on the horizon, especially for shorter terms. So patience could pay off.
“Given the uncertainty around future rates, shorter terms may remain attractive because they provide flexibility to reinvest if rates tick upward,” says A’jha Tucker, product manager of deposit growth at Georgia’s Own Credit Union.
A key reason the Fed may raise rates is to fight stubborn inflation, as consumer prices rose 3.4% year over year in July according to the Bureau of Labor Statistics, well above the Fed’s 2% target. Savers should note that persistent or growing inflation can leave longer-term CDs particularly vulnerable.
For example, a five-year CD may struggle to keep up with inflation if prices keep rising. Additionally, because your funds would be locked up in that long-term CD, you’d miss out on the higher rates that would likely be available if the Fed ratcheted up its effort to tamp down inflation.
Shop Around for the Best Rates
This advice almost always applies to CDs, but the variation in rates between banks and terms is particularly noticeable right now.
Consider the example of two banks that typically offer high yields on CDs. As of Sept. 3, 2026, Barclays offers a one-year CD at 4.00% APY, but its five-year rate is only 2.00%. Meanwhile, Popular Direct advertises a five-year rate of 4.50% APY. If you put $10,000 in the Barclays five-year CD, you’d earn about $1,040 in interest over five years. Alternatively, $10,000 in the Popular Direct CD would yield about $2,461 in earnings.
But Carow suggests savers should expand their search beyond the standard terms like six months, one year, three years or five years. Many banks save their highest rates for promotional offers one special terms. For example, American Express currently hands out its top rate of 4.25% APY for a 10-month term, while a one-year term is 3.50% APY.
However, Carow says it’s important to set a reminder for when your high-rate CD matures.
“CD investors should mark their calendars for when their CDs mature to again shop for the best renewal rates in the short seven-to-10-day window for renewal,” says Carow. “Or the CD will likely automatically renew at a much lower rate. This is especially true for special-term CDs.”
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.”
