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A certificate of deposit (CD) is a type of savings account that locks up your money for a set period of time, known as the term. In exchange, the bank pays a fixed annual percentage yield (APY), which is often higher than what you could earn with a traditional savings account.
When opening a CD, you can generally choose between a short-term CD (one year or less), mid-term CD (two to three years), or long-term CD (four years or longer). While longer-term CDs have historically offered higher rates, this isn’t always the case. Understanding the differences between short- and long-term CDs can help you choose the right option for your savings goals and interest-rate outlook.
Key Points
• A certificate of deposit is a type of savings account that locks in a fixed interest rate on a lump-sum deposit for a set term.
• You are protected by FDIC or NCUA insurance, which safeguards your deposits up to certain limits at insured institutions.
• Short-term CDs offer greater liquidity and flexibility, while long-term CDs can be beneficial for locking in rates when you have a distant financial goal.
• Withdrawing your funds before the maturity date often triggers an early withdrawal penalty that can cost you interest earnings.
• Using a CD ladder strategy allows you to balance the need for regular access to your money with the opportunity to earn higher rates over time.
How Do CDs Work?
A certificate of deposit (CD) is a specialized savings account that pays a fixed interest rate on a lump-sum deposit for a predetermined period. Unlike a regular savings account, you generally can’t add money after making your initial deposit.
At the end of the CD term, known as the maturity date, you can withdraw your original deposit plus all the interest earned. If you take no action, many banks will automatically roll your money into a new CD of the same length at the current market rate.
If you withdraw money before the maturity date, you’ll typically face an early withdrawal penalty. That’s why it’s important to choose a term that balances earning potential with your need for access to the funds. Some banks offer no-penalty CDs, but these accounts often come with lower APYs.
Are CDs Insured?
Yes. CDs offered by banks are generally insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per account ownership category (such as single, joint, or trust account), per insured institution. CDs held by a federally insured credit union receive similar protection from the National Credit Union Administration (NCUA).
This coverage protects your deposits (up to certain limits) if the bank or credit union fails, making CDs one of the safest places to keep cash.
What Is a Short-Term CD?
Short-term CDs have terms of one year or less. Common options include three-month, six-month, and one-year CDs.
A short-term CD gives you greater flexibility because you’ll regain access to your money quickly. While these CDs often pay lower rates than longer-term CDs, that’s not always the case. In some interest-rate environments, banks may offer higher yields on short-term CDs because they expect rates to decline or don’t want to commit to elevated rates for many years.
Even if rates are similar to those offered by long-term CDs, your money remains invested for a year or less, limiting how much interest you can earn. You’ll also need to decide relatively quickly whether to spend or reinvest the funds.
Pros and Cons of Short-Term CDs
Short-term CDs come with both benefits and drawbacks.
Pros:
• Competitive yields: Short-term CDs often pay more than traditional savings accounts and may occasionally outpace long-term CD rates.
• Low risk: They provide a safe place to hold money for near-term goals while earning a guaranteed return.
• Greater liquidity: You’ll regain access to your funds sooner, allowing you to respond to changing rates or financial needs.
Cons:
• May offer lower rates: If interest rates are rising, longer-term CDs may provide higher APYs.
• Early withdrawal penalties: Taking money out before maturity could cost you several months worth of interest.
• More frequent decisions: You’ll need to determine how to reinvest or use the money when the CD matures.
What Is a Long-Term CD?
A long-term CD typically has a term of four years or longer. In exchange for keeping your money on deposit for several years, you’ll receive a fixed interest rate for the entire term.
Long-term CDs have historically paid higher APYs than short-term CDs, though the yield curve can occasionally invert and make shorter maturities more attractive. Even when rates are similar, a longer term allows you to lock in a rate for years, which can be beneficial if interest rates decline.
The tradeoff is reduced flexibility. Accessing your money before maturity usually means paying an early withdrawal penalty.
Long-term CDs may be a good fit if you have a distant savings goal, don’t expect to need the money soon, and want to lock in today’s rates for several years.
Pros and Cons of Long-Term CDs
As with short-term CDs, long-term CDs come with both advantages and disadvantages.
Pros:
• Potentially higher yields: Longer terms have traditionally offered higher APYs.
• Protection against falling rates: You can continue earning the same rate even if market rates decline.
• Built-in savings discipline: Early withdrawal penalties can discourage you from tapping your savings prematurely.
Cons:
• Less flexibility: Your money remains tied up for years.
• Higher minimum deposit: Some banks require significant deposits to qualify for their best long-term CD rates.
• Interest-rate risk: If rates rise significantly, you could be stuck earning less than newly issued CDs.
Recommended: Money Market Account vs CD
Comparing a $20K Investment: Short-Term vs. Long-Term CDs
As of June 2026, average rates on six-month CDs are slightly higher than average rates on five-year CDs. Even so, the longer time horizon allows a five-year CD to generate substantially more interest.
It’s also important to distinguish between national average rates and best rates available. While national average CD APYs currently range between 1.25% and 1.38%, some online banks and credit unions are paying closer to 4.00% APY.
Here’s a look at $20,000 in a short- and long-term CD at the average national rate and average top rate.
National Average Rates
| CD Term | APY | Ending Balance |
|---|---|---|
| 6-month CD | 1.38% | $20,138 |
| 5-year CD | 1.25% | $21,387 |
Average Top CDs Rates
| CD Term | APY | Ending Balance |
|---|---|---|
| 6-month CD | 3.95% | $20,391 |
| 5-year CD | 3.89% | $24,205 |
Key Differences Between Short- and Long-Term CD Rates
| Short-term CD | Long-term CD | |
|---|---|---|
| Term length | 3 months to 1 year | 4 years or longer |
| Access to funds | Money becomes available sooner | Funds are tied up for years |
| Interest rates | Often lower, though sometimes higher | Historically higher |
| Minimum deposit | Generally lower | May be higher |
| Early withdrawal penalty | Usually smaller | Often larger |
| Safety | FDIC- or NCUA-insured | FDIC- or NCUA-insured |
| Best for | Near-term goals and planned purchases | Longer-term goals and locking in rates |
How to Choose Between a Short-Term and Long-Term CD
The right CD term depends on your goals, your need for flexibility, and your expectation for interest rates.
A short-term CD may make sense if:
• You may need access to the money within the next year.
• You want higher yields than a traditional savings account without locking up funds for several years.
• Short-term rates are currently equal to or higher than long-term rates
• You believe interest rates could rise and want the flexibility to reinvest later at higher yields.
A long-term CD may make sense if:
• You’re saving for a goal several years away, such as a home purchase or college expenses.
• Long-term CDs are offering attractive yields.
• You’re confident you won’t need the money before maturity.
• You expect interest rates to decline and want to lock in today’s rates.
The CD Ladder Strategy: Getting the Best of Both Worlds
To get the benefits of both short- and long-term CDs, you might consider a laddering strategy. This gives you regular access to your funds while letting you lock in the potentially higher interest rates offered by longer-term CDs.
With a five-year ladder, you divide your money among five CDs with maturities of one, two, three, four, and five years.
For example, if you have $10,000 to invest, you could put $2,000 into each CD. As the one-year CD matures, you would reinvest those funds into a new five-year CD at the best available rate. The following year, the two-year CD matures and is also rolled into a new five-year CD, and so on.
Eventually, you’ll have five separate five-year CDs, with one maturing each year. This approach gives you regular access to a portion of your money while allowing most of your savings to benefit from (often higher) longer-term rates. It can also help you take advantage of changing interest rates over time.
The Takeaway
A CD can be a smart way to earn a guaranteed return while keeping your money protected (up to federal insurance limits). In exchange for a fixed interest rate, however, you’ll typically need to leave your funds untouched until the CD matures or risk paying an early withdrawal penalty.
While longer-term CDs have historically offered higher yields, that’s not always the case. Comparing rates across different terms and institutions can help you find the best opportunity. Depending on your goals and need for liquidity, you may also want to compare CDs with high-yield savings accounts, which provide easier access to your money without early withdrawal penalties.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
While SoFi does not offer Certificates of Deposit (CDs), we do offer alternative savings vehicles such as high-yield savings accounts.
FAQ
Are short-term or long-term CD rates higher right now?
As of mid-2026, short-term CD rates are slightly higher than long-term CD rates at many banks and credit unions. This is the opposite of what typically happens since longer-term CDs have historically paid more. CD rates change over time, however, so it’s a good idea to compare APYs across multiple terms before opening an account.
Can I withdraw my money early from a long-term CD?
Yes, you can generally withdraw money from a long-term CD before it matures, but you’ll typically pay an early withdrawal penalty. Depending on the bank and the length of the term, the penalty may equal several months or even a year’s worth of interest. Some institutions offer no-penalty CDs, though they often pay lower rates.
How much interest will a $20K short-term CD make?
The amount you earn depends on the CD’s term and APY. For example, a six month CD paying 4.00% APY would generate about $400 in annualized interest, or roughly $200 over the six month term. Lower rates or shorter terms would result in less interest. A CD calculator can help you estimate your potential earnings before opening an account.
Is it better to put money in a high-yield savings account?
It depends on your goals. A high-yield savings account gives you easier access to your money and generally doesn’t charge early withdrawal penalties. A CD, however, locks in a fixed rate and may provide higher returns, especially if interest rates fall. If flexibility is your priority, a high-yield savings account may be the better option. If you can leave the money untouched for a set period, a CD may offer more certainty.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2026 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 5/28/26. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet
Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.
Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.
Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.
See additional details at https://www.sofi.com/legal/banking-rate-sheet.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.
*Awards or rankings from Forbes are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
We do not charge any account, service, or maintenance fees for SoFi Checking and Savings. We do charge transaction fees for outgoing wire transfers, Instant Transfers, and global remittance transfers. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
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