One Big Reason to Buy a 5-Year CD Today

If you're shopping for a certificate of deposit, you may notice that short-term CDs have a higher rate than long-term CDs right now. This is pretty unusual, since usually the reverse is true. Banks generally have to pay higher yields in order to get customers to lock up their money for longer.

Those short-term CDs may look pretty tempting, especially since many are paying upward of 5.00%. This was unheard of not too long ago when a great rate was in the range of 2.00% or less.

You might also notice that high-yield savings accounts are offering rates that are as good -- or better -- than the yields 5-year CDs are offering. This is also unusual, since usually CDs pay a higher rate (again, because they need to in order to get you to lock up your funds).

But despite the great deals on savings accounts and short-term CDs, you may actually want to put at least some of your cash into a 5-year CD anyway. Here's why.

Our Picks for the Best High-Yield Savings Accounts of 2024

Capital One 360 Performance Savings APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings Member FDIC.	APY 4.25% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of April 11, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
American Express® High Yield Savings APY 4.25% Rate info 4.25% annual percentage yield as of June 29, 2024 Min. to earn $1 Open Account for American Express® High Yield Savings Member FDIC.	APY 4.25% Rate info 4.25% annual percentage yield as of June 29, 2024	Min. to earn $1
Citizens Access® Savings APY 4.50% Min. to earn $0.01 Open Account for Citizens Access® Savings Member FDIC.	APY 4.50%	Min. to earn $0.01

Buying a 5-Year CD today is still a smart move

Buying a 5-year CD is the only way to lock in your rate and ensure you will be able to continue earning today's yields for half a decade. The rate you get when you sign up for a CD is guaranteed to last for the duration of the term until the CD matures.

If you check out the best 5-year CD rates, you'll see there are a lot of great offers out there right now. You could, for example, sign up for the Quontic CD providing a rate of 4.30% as of June 20, 2024 with just a minimum $500 deposit. If you signed up today, you'll be guaranteed to receive that rate until 2029.

This isn't the case if you get a high-yield savings account. While the awesome SoFi Checking and Savings is paying up to 4.60% as of June 20, 2024, that rate is variable. If interest rates start to decline across the board, its rate could, too. It's also not the case if you buy a 12-month CD or a 3-month CD or a 6-month CD, all of which would guarantee you can earn today's rates for a much shorter period of time.

It's very likely interest rates are going to fall in the coming years, as the U.S. central bank (the Federal Reserve) has indicated it's looking to cut rates this year and next year as long as inflation comes under control. If you have your rate locked in until 2029, you won't need to worry about earning a lower return or not being able to get a CD again at such a competitive rate.

How can you take advantage of today's great rates

Passing up the chance to get a five-year commitment from a bank to pay you upward of 4.00% interest would be a foolish mistake -- as long as you have money you can tie up for five years. You should absolutely consider signing up for a 5-year CD if that's the case.

If you also want to benefit from the great rates short-term CDs are offering, you can buy some of those, too. In fact, building a CD ladder is a great idea right now. It involves buying different CDs that mature at different times -- you could open a 1-year, 2-year, 3-year, 4-year, and 5-year CD. Creating a ladder could give you the best of both worlds -- a locked-in rate for years and short-term CDs at the highest rates available now.

If you don't have the money to build a ladder, though, give 5-year CDs a closer look. And seriously think about whether you want the chance to keep today's rates for years to come. In a few years when you're still earning great returns and others who opted for short-term CDs aren't, you'll be glad you took this approach.