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Long-term CDs: Everything to know

Long-term CDs offer savers a great way to lock in today's high interest rates. Getty Images

Interest rates have been high this year, and while that's not good news for consumers looking to borrow money, it is great for those opening savings products like certificates of deposit (CDs). 

It's true: CD interest rates have soared this year, even topping 6% at some banks and credit unions. And the best part? Those rates get locked in — sometimes for three, four or even 10 years.

"CDs can be a great place to park your cash for short- and mid-term goals," says Carla Adams, founder of Ametrine Wealth. "You want to be able to let your cash grow but also want to make sure it's there when you need it."

Should you consider getting a long-term CD to lock in today's high rates? Below, we'll break down everything you need to know about this product.

Start by exploring your long-term CD rates here to see how much more you could be earning on your money.

What is a long-term CD and how does it work?

CDs are a type of savings account that offers a guaranteed rate of return. You deposit a lump sum upon opening, leave the funds untouched for the entire term of the account, and then once it reaches maturity, you can withdraw the funds — plus all the interest it's earned over time.

CDs come in a variety of terms. The exact terms vary by bank, but you can usually get them for as little as three months or up to 10 years. Generally, CD terms that are three, four, five or 10 years are considered long-term CDs. With these, you'll need to keep your money in the account for an extended amount of time in order to reap the guaranteed returns.

"Long-term CDs provide you with certainty," says Chris Cucci, senior vice president at Climate First Bank. "You know that you will be earning a specific rate of return for a fixed time period."

See what long-term CD rate you can qualify for here now.

What are today's long-term CD interest rates?

Most of the time, long-term CDs have higher interest rates than longer ones, Cucci says. 

"But in today's crazy rate environment, many banks — including ours — are offering higher rates on mid-term CDs, typically 12 to 15 months, and on shorter-term ones, in some cases," Cucci says. "This irregularity is driven by the current inverted yield curve."

That doesn't mean long-term CD interest rates are low, though. Long-term CDs at Marcus by Goldman Sachs, for example, currently have rates of 4% or more. Ally Bank's long-term CDs have similarly high rates.

One thing to consider is where interest rates are headed. With the Federal Reserve likely to reduce its benchmark interest rate sometime in 2024, that will likely mean reduced savings and CD rates, too. If that's the case, locking in these 4%-plus CD rates for longer could be a smart move.

"If people begin expecting interest rates to lower, then they may want to offset that risk," says Kendall Meade, a financial planner at SoFi. 

Long-term CDs pros and cons 

The biggest advantage to long-term CDs, as Meade puts it, is "You lock in interest rates for a longer period of time."

This protects you against rate drops in the market, and it ensures you make a solid return on your money over time. 

Long-term CDs — and all CDs in general — are also just a safe option for growing your wealth. There's a fixed interest rate that's guaranteed, and the account is FDIC-insured, too. That means if your bank goes under, you'll get your money back no matter what (as long as it's below the $250,000 maximum). 

The downside of long-term CDs is that you could miss out on higher interest rates. If you lock in a 4% rate for five years, for example, but CD rates climb to 6% in one year, then you've missed out on the opportunity to earn that higher rate. 

Another big drawback is the early withdrawal penalties they usually come with. 

"If you need to access the funds prior to the end of the term of the CD — before they are set to mature, you will have to pay a penalty," Adams says. 

The exact penalty for withdrawing money early depends on the length of the CD, but it's usually between one month and one year's worth of interest. 

"Because of this, longer term CDs have far greater liquidity risk for the owner," Adams says. "You may think you won't need that money for several years, but something may come up between now and the far-out date of maturity and you will not be able to access that money without paying a penalty."

Combine both short- and long-term CDs

If you're worried about losing out on higher interest rates or locking in your money for too long, you can also consider creating a CD ladder. This involves dividing up your money into several CD accounts, all with varying terms. Then, when the first one comes to maturity, you can cash out or roll it into a new CD. 

"Laddering can provide liquidity over different maturities," says Joel Russo, founder of NJ Retirement Planning. "And it can possibly provide for the potential of higher rates later on."

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