The Weird Reason a 72-Month CD Could Be Right for You

A lot of people are rushing to open CDs these days while rates are still high. Once the Federal Reserve starts lowering interest rates, which it's expected to do later this year, CDs are likely to start paying less. So you might as well lock in a great rate while you can.

Now if you want the best CD rate out there, in many cases, you're looking at a 12-month or shorter term. Longer-term CDs aren't paying as well right now because it's a known thing that the Fed is likely to lower interest rates within the next six months or so. But if you can find a 72-month CD today, you may want to choose that term instead.

The case for the 72-month CD

Let's get one thing out of the way. It's not a given that your bank offers a 72-month CD. Many banks max out at a 60-month term.

You may also be inclined to write off a 72-month CD for a couple of reasons. First, that's a long time to lock your money away. And also, you're not going to get as strong a rate on a 72-month CD as you will with a 12-month CD today, generally speaking.

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But a 72-month CD could work for you if you have a specific goal you're saving for that aligns with that time frame, and if you also don't want to take the risk of investing your money in the stock market.

Let's say you have a child who's starting college in six years. You could put your savings into stocks, and that's a decent window of time to ride out the market's ups and downs. But it's also right on the cusp of being too short a window to comfortably invest in stocks -- or at least it may be based on your personal tolerance for risk.

What you lose in interest income in the next year may be worth the upside

Right now, First National Bank of America offers a 72-month CD that's paying a 4.30% APY as of this writing. A 12-month CD will give you an APY of 5.05%.

But remember, if you open for that 72-month CD, you're guaranteed to earn 4.30% for the next six years. So let's say you have $10,000 to lock up. A 12-month CD at 5.05% will pay you $505 over a year. With a 72-month CD, you're only getting $430, which is a $75 difference.

But what if 12-month CD rates then fall to 3.75% next year, 2.75% the year after, and so forth? It's the guarantee of the 72-month CD that makes it an appealing choice if it works for a specific goal of yours.

If you put $10,000 into a 72-month CD with a 4.30% APY, you'll end up with $12,925.58 by the time your CD matures. So you're guaranteed to earn almost $3,000. All a $10,000, 12-month CD guarantees you is $505 your first year. Beyond that point, it's anyone's guess, since we don't know where CD rates are headed.

A 72-month CD may seem like a product that doesn't make sense for you. But it could actually be a really smart place to put your money -- if you can find one.