6-Month vs. 12-Month CD: What's a Better Bet for You?

It's a pretty good time to open a CD. CD rates are up following the Federal Reserve's recent stretch of interest rate hikes. And while you could take advantage by putting your money into a regular savings account, the rate you earn on your money in one of those accounts can fluctuate with market conditions. The upside of a CD is that your interest rate is guaranteed for your CD's entire term.

Plus, because CDs require a commitment on your part, they generally pay more than savings accounts. So that, too, could work in your favor.

You may be interested in a CD but be torn between a 6-month term versus a 12-month term. That's understandable. The latter requires a much longer commitment than the former. If you're not sure which option to choose, ask yourself these questions.

1. Which term offers a better rate?

A 12-month CD will often come with a higher interest rate than a 6-month CD, though this isn't always a given. Right now, though, many banks are offering a better rate for a 12-month CD. So if your goal is to earn the maximum amount of interest, then tying your money up for a year may be the right choice.

At Capital One, for example, you can earn a 4.25% APY on a 6-month CD. With a 12-month CD, you're looking at an APY of 4.80%. If you're depositing $5,000, your 6-month CD will give you about $109 in interest after half a year. With a 12-month CD, you're looking at a little over $131 in interest at the 6-month mark.

2. Which term comes with a harsher penalty for an early withdrawal?

You might open your CD with the intent to keep your money in the bank for the duration of its term. But sometimes, things happen. If you end up needing cash in a pinch beyond what your emergency fund can cover, then you might need to tap your CD early, even if that results in a penalty.

Before you commit to a 6-month CD over a 12-month CD, you may want to see if there's a difference in penalties. And that will hinge on your bank.

At Capital One, there's no difference between cashing out a 6-month CD early versus a 12-month CD. You'll be looking at a penalty of three months' worth of interest either way. But other banks might have a different structure, so it could pay to do some research.

3. How much flexibility do I need with my cash?

You may feel uneasy with the idea of tying up your money for a longer period. If you would rather have that money free up sooner for your own peace of mind, that may be reason enough to look at a 6-month CD over a 12-month CD.

Remember, too, that it's hard to say with certainty what the economy has in store in 2024. Things are stable now, but if the situation shifts, you may not feel comfortable with the idea of having to wait so long to access your cash. And it's perfectly OK to base your choice on your comfort level.

All told, opening a CD right now could put some easy interest earnings in your pocket. Run through these questions if you can't decide whether a 6-month or 12-month term is right for you.