With interest rates still at elevated levels, many savers are considering locking in their money with a certificate of deposit (CD).
The question is: should you go short and flexible with a 6-month CD, or lock in a higher certainty with a 5-year CD?
While both offer unique benefits, your decision depends heavily on your financial goals, your need for liquidity, and your outlook on interest rates in the near future.
In this blog post, we’ll explore the pros and cons of both CD types and present a third option that might suit your needs even better.
Let’s Understand the Current CD Landscape
As of now, top CD rates look like this:
- 6-month CDs: ~4.50% APY
- 5-year CDs: ~4.00% APY
If you were to deposit $10,000 into a 6-month CD at 4.50% APY, you’d earn approximately $223 after one term.
On the other hand, putting the same amount into a 5-year CD at 4.00% APY would yield around $2,167 over the entire term.
At first glance, it may seem like the shorter CD earns more, but that’s only true if interest rates stay the same – or rise – over the next five years.
The Federal Reserve, however, is expected to cut interest rates later this year, which could lower future CD yields.
If that happens, reinvesting in new 6-month CDs repeatedly might result in diminishing returns compared to locking in today’s 5-year rate.
The Case for 6-Month CDs
✅ Pros:
- Flexibility: With a short commitment, your funds are available sooner if needed. You can reevaluate your options every six months.
- Attractive APY: 6-month CDs currently offer some of the best returns in the CD market – beating out many savings accounts and even longer-term CDs.
❌ Cons:
- Limited Compounding: Since the term is short, you won’t benefit much from compound interest.
- Reinvestment Risk: When the CD matures, rates may have dropped significantly, lowering your potential earnings.
Ideal For:
- Individuals who might need access to their money in the near term.
- Those who expect interest rates to increase, and want the flexibility to take advantage of higher rates when available.
- Investors looking for a safe place to park cash temporarily without tying it up for years.
The Case for 5-Year CDs
✅ Pros:
- Locked-In Rate: If interest rates drop, as many experts forecast, your 4.00% APY will remain unaffected – an attractive feature in a falling-rate environment.
- Long-Term Simplicity: No need to continuously move money every few months. You set it and forget it.
❌ Cons:
- Lower APY (for now): 6-month CDs currently pay more, which is an unusual but notable situation.
- Early Withdrawal Penalties: If you need the money before maturity, you could lose a year or more of earned interest.
- Less Flexibility: Five years is a long time to commit funds – especially if your financial situation changes or better investment options appear.
Ideal For:
- Savers with long-term funds they won’t need soon.
- People who prioritize safety and predictability over chasing higher, short-term gains.
- Those expecting interest rates to decline, making today’s fixed rate more valuable in the future.
A Smarter Strategy: Why Not Both?
If you’re struggling to decide, consider diversifying with a CD ladder strategy – or simply split your investment between short and long-term CDs. That way, you can:
- Take advantage of today’s higher short-term yields.
- Lock in a secure, long-term rate in case the Fed starts slashing interest rates.
This approach hedges your risk and balances flexibility with guaranteed returns.
A Third Option: High-Yield Savings Accounts (HYSAs)
Not ready to lock your money away at all? A high-yield savings account (HYSA) might be your best alternative.
While the rates can change at any time, many of the best HYSAs are currently offering APYs around 4.00% or higher – comparable to 5-year CDs, but with full liquidity.
For example, the Barclays Tiered Savings Account currently offers a 4.00% APY with no monthly fees and applies that rate to balances under $250,000.
You can withdraw and deposit funds whenever you like, making it an ideal solution for those who want both growth and access.
Final Thoughts: Which Should You Choose?
There’s no one-size-fits-all answer when it comes to CD investments. Here’s a quick guide:
| Scenario | Best Option |
|---|---|
| You need access in 6 months or less | 6-Month CD or HYSA |
| You won’t need the money for 5 years | 5-Year CD |
| You want a balance of safety and flexibility | Split between 6-month & 5-year CDs |
| You want liquidity and a solid APY | High-Yield Savings Account |
Ultimately, the best investment right now depends on your cash needs, risk tolerance, and interest rate outlook.
But one thing’s clear – locking in a high APY while rates are still elevated can be a smart move in today’s market.
If you’re ready to make a move, compare the best CD rates and HYSAs available today to find the best fit for your financial strategy.