Why a long-term CD is better than these 3 alternatives

If you have been looking for a safe and reliable way to protect your savings in 2023 and 2024, a Certificate of Deposit (CD) account was often one of the optimal ways to do this. Interest Rates on CDswhether short-term (under 12 months) or long-term (over 12 months), were exponentially higher than a few years earlier. And the interest rates on these accounts are fixedThis means that despite any volatility in the general interest rate environment, they will remain as they were when you first opened the account.

However, as the economy has changed, inflation has fallen and interest rate cuts have been decided, a long-term CD has become the clear choice. Whether with an 18-month CD or something with a term of 2 years or more, a long-term CD is now arguably better than many common alternatives. Below we compare this unique savings instrument with three other account types.

See how much more you could earn with a long-term CD here.

Why a long-term CD is better than these 3 alternatives

Not sure if a long-term CD is the right choice for you? Compare it to these three other options to better understand why it might be:

High-interest savings accounts

High-interest savings accounts work like normal savings accounts, but with higher interest rates. Even though the Federal Reserve has already made two interest rate cuts in 2024, it is currently still possible to find a high-yield savings account with an interest rate close to 5%. And unlike CDs, you don’t have to lock your money in the account to earn that high interest rate. Thanks to variable interest rates, if interest rates rise again in the future, the interest rates on these accounts will also rise independently.

Why a long-term CD is better: A long-term CD is arguably preferable to high-interest savings accounts, especially because of the fixed interest rate that comes with it. Long-term CD interest rates are competitive but not quite as high as high-yield savings accounts, but the interest rate remains the same until then CD matures. And with more interest rate cuts likely as early as this month, you’ll likely earn more by tying up your money in a long-term CD than you would by taking a risk with a high-yield variable-rate savings account.

Compare your CD and high-yield savings account options online now.

Traditional savings accounts

If you have your money in a traditional savings account and are having trouble finding the interest you’ve earned on your money so far, it’s easy to see why. According to the FDIC, the average interest rate on a traditional savings account is currently just 0.43%. Like high-yield savings accounts, interest rates on traditional savings accounts are variable. The current interest rate of 0.43% could be even lower in 2025.

Why a long-term CD is better: Simply compare the possible tariffs. You can now get a 4.20% interest rate on a 3-year CD and a 4.35% interest rate on a 5-year CD – that’s 876% and 911% better, respectively, than what traditional savings accounts currently offer offer.

Short-term CDs

Short-term CD accounts now have slightly higher interest rates than long-term CDs, and savers don’t have to worry about this as much Prepayment penaltybecause it’s generally easier to keep your money locked away for three or six months than for 18 months or in two-year CDs. So if you’re looking for a quick way to get in on today’s increased interest rates, a short-term CD is one of your better options.

Why a long-term CD is better: Do the math. A $10,000 deposit into a 6-month CD with an interest rate of 4.50% will result in a minimum earnings of $222.52 when the account matures. However, making an identical deposit into a 2-year CD at 4.20% will result in a return of $857.64. So if you can comfortably afford the item with your money over a longer period of time, you will be rewarded with a significantly higher return.

The end result

While every saver’s financial situation is different, there are compelling arguments for opening a long-term CD instead of many popular alternatives starting in 2025. With this type of account, savers can earn a high interest rate – and potentially keep it for years. Just make sure you weigh the initial deposit against your ability to fully manage the account CD term to improve your chances of long-term financial success.