How long are CD terms? What they are and how they wor
Understand how CD term lengths work, how they can impact your interest rates, and how to choose the right option for your savings goals.
What are CD terms?
A certificate of deposit (CD) is a type of deposit account that gives you a fixed interest rate for a set period of time (known as the term length), and in exchange for leaving your funds untouched, you can benefit from interest rates that are usually higher than those of traditional savings accounts.
Your CD term is the fixed length of time for which you agree to leave your money in the account. CD term lengths can range from a few months to several years. During this set period, you earned a fixed interest rate on your principal deposit, and at the end of your term, or your maturity date, you will receive your initial amount plus any interest earned.
However, if you need access to your funds before your CD matures, you will owe a penalty fee, and potentially other fees set by your bank. If you think you will need access to your funds during your CD term, you might want to consider a no-penalty CD instead, which, as the name suggests, does not penalize early withdrawals.
How long is a CD term?
When choosing a CD term, there are various options available, allowing you to decide if you want to focus on short-term or longer-term goals. To break things down, let’s take a look at the typical term lengths.
Short-term CDs: Typical short-term CD terms are three, six, nine, or 12 months.
Mid-term CDs: Common mid-term CDs range from one to three years, with popular lengths including 12, 18, 24, and 36 months.
Long-term CDs: Long-term CDs generally have terms of one to five or more years, with typical durations including three, four, five, or even 10 years.
While short-term CDs may offer more flexibility, they might not have the most competitive rates. Longer-term CDs, on the other hand, may appeal to savers with stable cash flow, because longer terms tend to offer higher rates, which leaves you with guaranteed predictable returns. However, it is important to consider your financial situation and other needs when choosing your CD term to plan accordingly and avoid early withdrawal fees.
CD terms and rates: What to expect
Now that we’ve cleared up what CD terms are and how they work, it’s also important to know how CD rates work and how your term length can affect your rate.
How CD rates work
A CD rate is the fixed interest rate your bank or credit union pays you for locking your money away for a set term. Most CDs have fixed rates, meaning the interest rate is locked in when you open the CD and will remain the same for the duration of your term. However, some variable-rate CDs do exist but are less common (e.g., bump-up CDs). These types of CDs may periodically adjust their rates based on certain benchmarks.
Banks and credit unions set CD rates which are largely influenced by the Federal Reserve’s (the Fed) federal funds rate, and the broader interest rate environment. Different political and economic factors (like inflation) can influence changes in interest rates, which are usually set by the Fed. CD rates often follow the direction of the Fed’s rate moves, so some savers try to take advantage and open CDs when rates are high.
Why are CD rates higher for shorter terms sometimes?
While rates tend to favor longer-term CDs, there may be some instances where rates are actually higher for shorter-term CDs. For example, CD rates may be higher for shorter terms during periods when the Fed is expected to make interest rate cuts. This leads to an economic condition known as an inverted yield curve, meaning that interest rates on long-term debt instruments are lower than those on short-term debt instruments, which often predicts that the Fed will cut short-term rates in the future.1
When this happens, some banks may offer higher yields on short-term CDs to attract more deposits and profit when rates are higher, without having to commit to long-term high-interest payments in the event that rates do fall.
Short-term CDs vs. Long-term CDs
Deciding on a CD term length may be tricky, so finding the right balance to match your goals can help you find the best term length for you. Let’s compare how short-term and long-term CDs might be used.
Feature | Short-term CDs | Long-term CDs |
Typical term length | 3 months to 1 year | 3+ years |
Interest rates | Usually lower than long-term CDs (exceptions may apply) | Typically, higher, fixed rates |
Liquidity/accessibility | Funds are locked for a shorter period, offering more flexibility. Early withdrawals may incur penalties | Funds are locked for a longer period; early withdrawals may incur penalties |
Best for | Short-term goals, uncertain rate environments | Locking in higher rates for predictable, long-term growth |
Rate risk | Less affected by future interest rate changes | More risk exposure: if rates rise after you lock in, you're stuck with a lower rate |
Reinvestment flexibility | Frequent maturity allows reinvestment at potentially higher rates | Less frequent opportunities to adjust to new rates |
Pros | Greater liquidity; flexibility to reinvest; favorable in rising rate environments | Higher yields over time; lock in attractive rates for years; can help reach long-term savings goals |
Cons | Often lower interest rates; frequent reinvestment decisions needed; may miss out on higher long-term yields | Less flexibility due to longer terms; early withdrawal penalties may be higher; risk of rates rising after you lock in |
How to choose the right CD term for your goals
When choosing how long you want to lock away your funds, you may want to consider matching your CD term to your financial goals. For example, if you are saving for a vacation, you might consider a short-term CD, but if you are saving towards a bigger goal, such as a down payment on a house or for retirement, a mid- to long-term CD might give you more benefits.
If you want to focus more on liquidity and growth, you could also consider using a CD laddering strategy. CD laddering entails opening multiple CDs with varying maturity dates, which can bring you more flexibility and predictable yields.
Regardless of how long or short you choose your CD term to be, weighing your risk tolerance and interest rate outlook could help you decide. You may also want to inform yourself of potential early withdrawal penalties and consider your needs for liquidity to ensure you won’t need to access your money before the term is up. Therefore, it may be wise to fully consider your financial situation rather than trying to chase the highest CD rate.
Grow your savings with Raisin
CD terms aren’t just about picking the highest rate—they’re about aligning your savings timeline with your financial objectives. Short-term CDs can give you flexibility and reinvestment opportunities, while longer terms can lock in higher rates for predictable growth. The right choice depends on your priorities: liquidity, rate outlook, and personal goals. By understanding how CD terms and rates work together, you can make more strategic savings decisions and maximize your earnings potential.
If you are ready to open your own CD today, Raisin is here to help. Explore top savings products and CD offers with Raisin to find the right fit for your financial plan. Compare rates and start boosting your savings today!
Frequently asked questions
Typically, no. Most CDs charge an early withdrawal penalty if you take money out before the maturity date. However, no-penalty CDs are available if you want more flexibility, though they may offer slightly lower rates.
When your CD reaches maturity, you’ll get your original deposit plus any interest earned. You can withdraw your funds, reinvest in another CD, or roll it over to a new CD of the same term.
It depends on your goals and interest rate outlook. Multiple short-term CDs offer more liquidity and reinvestment opportunities in rising-rate environments. A single long-term CD can be considered if you want to lock in higher rates for stability. Many savers use a CD laddering strategy to combine the best of both.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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*APY means Annual Percentage Yield. APY is accurate as of [todayDate]. Interest rate and APY may change after initial deposit depending on the terms of the specific product selected. Minimum opening deposit is $1.00.
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