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With interest rates remaining elevated in today’s economic landscape, certificates of deposit (CDs) continue to be an attractive option for savers looking to park their cash in an interest-bearing account. At today’s rates, the returns on the money deposited in a CD account could be hefty, after all, but you’ll need to choose the right account — and the right CD term — to maximize what you can earn in interest. And, if you’re trying to decide between a long-term CD or a short-term CD, the choice may not be as straightforward as it seems.
Short-term CD rates have been higher than normal in recent months, often outpacing their long-term counterparts, meaning that they appear, at least on the surface, to be a better bet. But today’s issues with economic uncertainty, coupled with the possibility of Federal Reserve rate cuts later this year, have left savers wondering whether to lock in today’s rates for the long haul or stick with a shorter term in case rates climb again. So, which one makes more sense if you’re depositing $5,000 now?
The answer to that question depends on more than just CD APYs. To help you make an informed decision, let’s compare today’s rates and calculate how much interest $5,000 would earn in both long- and short-term CDs right now.
Find out how much you could earn with the right CD account today.
$5,000 long-term CD vs. $5,000 short-term CD: Which earns more interest now?
Calculating CD interest earnings is straightforward thanks to the fixed-rate structure this type of account offers. However, current market conditions have created an unusual situation where short-term CD rates are moderately higher than long-term alternatives — a departure from historical norms. Here’s what each option could earn if you were to deposit $5,000 now (assuming there are no fees or early withdrawal penalties to account for):
Long-term CDs:
- $5,000 18-month CD at 4.26%: $322.88 for a total of $5,322.88
- $5,000 2-year CD at 4.20%: $428.82 for a total of $5,428.82
- $5,000 3-year CD at 4.25%: $664.98 for a total of $5,664.98
- $5,000 5-year CD at 4.20%: $1,141.98 for a total of $6,141.98
Short-term CDs:
- $5,000 3-month CD at 4.40%: $54.12 for a total of $5,054.12
- $5,000 6-month CD at 4.45%: $110.04 for a total of $5,110.04
- $5,000 9-month CD at 4.26%: $158.91 for a total of $5,158.91
- $5,000 1-year CD at 4.40%: $220.00 for a total of $5,220.00
This comparison reveals a clear pattern: While short-term CDs offer slightly higher interest rates, the extended earning period of long-term CDs results in substantially greater total returns. The highest-earning short-term option generates $220 in interest over one year, while the best long-term CD produces $1,141 over five years, or nearly five times the return. This impressive difference underscores the power of compound time in fixed-income investments.
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Why your CD term length matters now
The reason short-term CDs are so competitive right now comes down to economic conditions. With the Fed signaling potential rate cuts later this year, banks are offering higher yields on shorter maturities to attract deposits while hedging against future declines in borrowing costs.
That dynamic flips the usual script, where long-term CDs traditionally come with much higher rates. As a result, choosing a shorter term in today’s rate and economic environment can help you preserve flexibility, allowing you to reinvest later if rates rise or shift your strategy entirely if necessary.
On the other hand, if you believe rates are likely to drop in the near future, locking in a long-term CD now could be a smart way to secure today’s high yields before they disappear. Just be aware that accessing your CD funds before the account has matured could trigger penalties that eat into your earnings.
The bottom line
If your main priority is earning the most interest possible and you don’t need access to your cash anytime soon, a long-term CD delivers the biggest overall return. On $5,000, you could earn between about $323 and $1,142, depending on the CD term and the rate you secure.
But if flexibility matters or you want to wait and see where rates head next, a short-term CD could be the better fit. With APYs hovering near 4.4% for 6- to 12-month terms, you’ll still earn solid interest on a shorter CD term — and have the option to reinvest when the CD matures.
Whichever route you choose, though, it’s important to act sooner rather than later. If rate cuts materialize this year as many economists expect, today’s top CD yields may not stick around for long.
