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304 North Cardinal St.
Dorchester Center, MA 02124
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When shopping for a certificate of deposit (CD), you might encounter terms ranging from a few months to several years. So, which option is best? It depends on your goals and when you need to access your savings. Here, we explore the pros and cons of long-term and short-term CDs and how to choose the right one for you.
Long-term CDs generally refer to CDs with terms that last three years or longer. Typically, long-term CDs provide a higher annual percentage yield (APY) than short-term ones. However, they tie up your money for an extended period, and early withdrawals can result in fees. Additionally, if market interest rates increase while your money is locked in a long-term CD, you might miss out on better yields elsewhere.
Short-term CDs have terms that last from three months to a year or slightly longer. They are ideal for depositing cash you need for near-term goals. While they typically offer lower returns than long-term CDs, banks may offer promotional rates on shorter-term CDs to attract new customers. Like long-term CDs, short-term CDs may have early withdrawal fees.
Short-term CDs are best for near-term goals, while long-term CDs are better for long-term savings. For example, if you have cash saved for a move in three months, a short-term CD could be a good place to park that money. Conversely, a long-term CD might be suitable for savings you don’t need for several years, such as a down payment on a house.
Consider setting up a CD ladder to maximize the benefits of both short- and long-term CDs. For instance, if you have $5,000, you could put $1,000 into five different CDs with varying maturity dates. This strategy allows you to take advantage of different interest rates and access your money at different times.
CDs are just one way to earn interest on savings. Here are some alternatives:
When deciding between a short-term and long-term CD, consider your goals. Short-term CDs are likely better for near-term needs, while long-term CDs are suitable for money you don’t plan to touch for many years. If your goals are unclear, consider opening several CDs with different terms to take advantage of the benefits both types offer.
For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions for your future.
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