Have you ever wondered why longer term certificates of deposit (CDs) pay a higher annual percentage yield (APY) than shorter term CDs? The reason for this is fairly simple. The longer the term in which you are able to commit your investment, the more attractive the APY will be. Let’s assume you learn of an attractive rate on a 25-Month CD being promoted at a local community bank. You have some money saved up and don’t need access to it for a while. You go into your local branch and open the CD with an initial deposit of $2,000. In this scenario, your commitment to the CD term and amount invested will enable the bank to use your money over a 25-month period to fund loans in the local community.

Term + Investment = Attractive CD Rate

CDs are available in a variety of terms ranging anywhere from as little as 7 days on up to 5 years. Keep in mind the APY, term and investment does vary by region. Check out Bankrate.com to compare CD rates in your area.

We compared rates on short-term CDs vs. long-term CDs as of March 8, 2018.

Short-Term CDs (3-12 months)

Term APY Investment
3 months 0.03% – 0.10% $1,000 – $2,000
6 months 0.15% – 0.35% $500 – $2,000
12 months 0.20% – 0.40% $500


Mid-Range CDs (1-3 years)

Term APY Investment
24 months 0.35% – 0.60% $500
36 months 0.50% – 0.75% $500


Long-Term CDs (4-5 years)

Term APY Investment
48 months 1.05% – 1.75% $500
60 months 1.00% – 1.41% $500

Based upon the chart, the longer you can commit your money, the higher the rate, and the lower the required investment. If you have an appetite for stashing away your hard earned cash for a period longer than five years, then you may want to consider investing in a Bump-up CD. This type of CD allows you to increase the rate once during the term as rates begin to rise in the market.

Commitment is key!

Before investing in short-term CDs vs. long-term CDs, you need to determine the appropriate length of time you feel comfortable with having your money invested. Here are a few things to consider when deciding which CD term is best for you.

  • When will you need money?CD Term Length
  • Do you have an emergency fund in place for unexpected expenses? It’s a best practice to have at least three to six months of living expenses saved in the event of an emergency, such as the loss of your job, injury that keeps you away from work, etc.
  • Does the CD auto roll-over? If your CD auto renews at the end of its term and you do not do anything, then you will not be able to access the funds until the new term has ended.
  • Will interest rates rise or fall over the next several months? In a rising rate environment, you may want to consider investing in short-term CDs vs. long-term CDs, so you can take advantage of the possibility of a higher rate at the end of your CD’s term.
  • Can you accept a loss in the event of inflation? According to GoBankingRates.com, long-term CDs can run the risk of inflation outpacing the APY.

Short-term CDs and long-term CDs do have many advantages. Both can help you reach your savings goals by providing a guaranteed rate of return with up to $250,000 of FDIC insurance, so your investment is safe. FSB is offering specials on a 7-Day and 25-Month CD. To learn more, check out our CD specials.


Written by Dawn Beers

Dawn Beers

Dawn heads up our marketing department where she is responsible for the general oversight and management of the Bank’s marketing and public relations initiatives. This involves managing the planning, organizing and directing of our advertising, public relations, product development, sales promotion and research efforts.

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