Long-term CDs Outearn Short-term Ones for $100,000 Deposits Amid High Rates

Interest rates on long-term certificate of deposit accounts have outpaced those on short-term CDs in recent years, reversing traditional patterns. Savers committing funds for extended periods now earn more than those opting for accounts maturing in a few months.

Inflation climbed again in April and stands near 4%, according to a Bureau of Labor Statistics report this week. That figure exceeds the Federal Reserve's 2% target by nearly two percentage points. Rate-cut prospects at the central bank's June meeting appear slim, keeping borrowing costs high and amplifying inflation's effects.

Short-term CDs offer competitive rates that appeal to those parking a six-figure sum like $100,000. But calculations show long-term accounts generate more interest overall, even if their rates edge slightly lower, thanks to the longer earning period and compounding.

For $100,000 in top short-term CDs, with no early withdrawal penalties:

A three-month CD at 3.90% yields $961.06 at maturity.

A six-month CD at 4.10% yields $2,029.41.

A nine-month CD at 4.00% yields $2,985.24.

A one-year CD at 4.10% yields $4,100.00.

Long-term options for the same deposit produce higher returns:

An 18-month CD at 4.09% yields $6,197.31.

A two-year CD at 4.16% yields $8,493.06.

A three-year CD at 4.13% yields $12,908.75.

A five-year CD at 4.15% yields $22,545.22.

Long-term CDs thus deliver between roughly $6,200 and $22,500 for a $100,000 deposit started now.

Savers should weigh early withdrawal penalties, which can hit hard on large sums. Those able to hold until maturity maximize gains with long-term CDs and shield principal from market swings until rates stabilize.