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Why you should open a long-term CD this December

Long-term CDs come with high rates now that will let savers earn interest long into the future. Getty Images/iStockphoto

It's no secret that interest rates have been high this year. 

Due to decades-high inflation (it hit a 40-year high in June 2022) and an aggressive attempt by the Federal Reserve to rein it in (rates hit a 22-year high in the summer), borrowers have been hit particularly hard. Rates on everything from personal loans to mortgages and credit cards are significantly higher than they were just a few years ago.

But it hasn't been all bad news, as higher rates for borrowers also mean higher rates for savers. And returns for high-yield savings and certificates of deposit (CD) accounts are now the highest they've been in years. That said, timing is everything, particularly when it comes to personal financial moves. And the timing right now could be closing on CDs, particularly long-term ones. For many savers, it makes sense to open a long-term CD this December while they can still benefit from today's high rates.

Not sure what CD rate you'd qualify for? Find out here now and start earning more interest on your money.

Why you should open a long-term CD this December

A long-term CD is considered to be a CD with a term longer than 12 months (think two, three and even five years). There are multiple compelling reasons why you should open one of these account types now. Here are three to know:

Rates are high

While rates on long-term CDs aren't as high as short-term ones (a reversal from historical trends), they're still elevated compared to what you can typically get. You can easily find rates of 5% to 5.60% on 2 or 3-year CDs right now. There are even 4 and 5-year CDs with rates upward of 4.80% that you can open today. 

While those may not be quite as high as the near 6% rate you can get with a short-term CD, they're still competitive and can generate a nice return for those willing to lock a portion of their funds away for a few years. By depositing $5,000 into a 5-year CD with a 4.86% APY, you'd make a profit of $1,338.98. That's a lot of money for very little risk or work.

Get started with a long-term CD today!

But they're unlikely to stay high

Rates are only high right now thanks to inflation. As inflation continues to cool and gets closer to the Fed's target goal of 2% (it was at 3.2% in October), rates are likely to remain unchanged, and some even expect them to fall at some point in 2024. So today's CD rates, regardless of the term you ultimately choose, are unlikely to stay this high for very long. 

While you may want to wait to see if they go even higher, you'll lose out on the money you could earn at today's rates. Plus, you could always ladder multiple CDs so that they expire at different times, thus allowing you to take advantage of any future rate bumps. 

What you shouldn't do, however, is nothing, as you're likely already losing money by keeping your funds in a regular savings account (which currently comes with a minimal 0.46% rate).

You'll be locked in at today's high rate

So why should you open a long-term CD this December and not some other time? Because CD rates are locked for the full CD term. This means if rates drop in January or later in 2024, you'll still be earning interest at the rate you opened the account with. 

That's a major advantage, especially when compared to regular savings accounts or high-yield ones, which come with variable interest rates subject to change based on the wider rate environment. CD terms are locked for the full CD, giving savers peace of mind and the ability to know exactly how much money they will have when the account ultimately expires.

The bottom line

CDs are a smart and safe way to grow your money, but they've been especially beneficial this year. That said, it makes sense for many savers to act now to take advantage of the rate climate. By opening a long-term CD this December, savers can secure today's high rates before they inevitably fall in the months and years to come. And they'll be locked in at that elevated rate for their full CD term, allowing them to earn interest at that higher rate even if the rate environment becomes less favorable during their term. For these three reasons, it may be worth it for you to open a long-term CD this month.

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