Should I Choose a Short-Term CD or a Long-Term CD?

When it comes to fortifying your finances, certificates of deposit (CDs) from military banks could be your strongest ally. Like a well-drilled soldier, CDs are dependable, offering fixed interest rates and maturity dates. It's like leaving your money at base camp for a specific period in exchange for assured reinforcements. The big decision you face is whether to choose a short-term CD or a long-term CD. Let's unpack the details.

To refresh your memory on the fundamentals of certificates of deposit, check out our previous blog What is a CD and How Does it Work? Now let’s get back to comparing short and long-term CDs!

How Much Will You Earn?

• Short-Term CD — This option is more like a brief scouting mission. Short-term CDs usually offer lower interest rates than their long-term counterparts. For instance, you could open a 6-month CD with an interest rate of 1.6% APY.
• Long-Term CD — This is your long-haul mission, generally carrying higher interest rates. For example, a 5-year CD might have an interest rate of 3.75% APY or more. Not too long ago, Armed Forces Bank offered a 15-month CD with a whopping 4.60% APY (Annual Percentage Yield) – that's not just a salute, it's a full honor guard!

Key Interest Rate Takeaway — If securing the maximum return on your investment is your mission, long-term CDs usually put you in command with higher interest rates. However, special promotions can sometimes flip the script. It's also important to note that the Fed determines the rates, influencing both short-term and long-term CD rates.

Curious how to calculate CD interest? A CD account calculator is your greatest ally!

How Long Will Your Money Be Locked Away?

• Short-Term CD — Like a short temporary duty (TDY), a short-term CD is ideal if you want your money back soon. We're talking about a term of 3 months to 12 months. They are perfect to meet your savings goals that are just around the corner, like a well-deserved R&R or future expenses.
• Long-Term CD — This option demands a more extended commitment, ranging from 2 years to 5 years. They are great for future objectives like securing a retirement or planning for a home.

Key Time Commitment Takeaway — Pick a short-term CD for flexibility and easy access to your money. Choose a long-term CD if you can commit to several years.

What Happens If You Need Your Money Early?

• Short-Term CD — While the penalties for an early withdrawal are generally lower, it still results in a loss. Penalties could be a few months' worth of interest.
• Long-Term CD — Breaking ranks early with this option could feel like a full-blown retreat. Some banks might charge up to 2 years of interest if you decide to withdraw early.

Key Penalty Takeaway — If there's a possibility of needing immediate access to your funds sooner than you planned, short-term CDs might have a lighter penalty for early withdrawal.

How Much Can Your Money Grow?

• Short-Term CD — Like a basic training cycle, a short-term CD provides less time for your money to grow. But the compound interest is still working in your favor.
• Long-Term CD — This is more like a career-long enlistment. With more time, the compound interest greatly racks up promotions.

Key Growth Potential Takeaway — If you can hold your position and wait, long-term CDs offer the best potential for growth due to the power of compound interest. Of course, exceptions exist.

What are You Saving For?

A Short-Term CD is great for:

• Emergency funds
• Saving for an event or purchase within the next year or so
• Adaptable savings goals

A Long-Term CDs is great for:

• Retirement savings
• Long-term investments
• Goals that are several years down the road, like education funds or major purchases

Key Financial Goals Takeaway — Pair your CD choice with your money goals. Short-term CDs offer adaptability and earlier access, while long-term CDs are best for saving up for your financial objectives later in life.

Finding the Best Certificate of Deposit for You:

Wondering where to deploy your savings? Choosing between short-term or long-term CDs ultimately depends on your strategy and current financial standing. Short-term CDs are handy for quicker access and flexibility, while long-term CDs fortify higher returns and stability.

And if you’re searching for a dependable command center, Armed Forces Bank is ready to serve. Our 15-month CD offers 4.60% APY* (Annual Percentage Yield), making it an excellent choice for both short-term and long-term objectives.

Join forces with our military bank and open a CD today. It’s time to let your money grow with some of the most secure and best CD interest rates.

Open a certificate of deposit with Armed Forces Bank and watch your investments grow!

Member FDIC

* Annual Percentage Yield. $500 minimum opening deposit required. A penalty may be imposed for early withdrawal. The Annual Percentage Yield (APY) is accurate as of 07/15/24. CD rates are subject to change at any time and are not guaranteed until CD is opened. Fees charged to the account could reduce earnings on the account.