What is the difference between short term and long term CD rates?

The prevailing rates of interest is always the crucial factor in the market based on which consumers make a decision with regard to investments.  It is a known fact that consumers will be influenced by the market and will try to save money when the interest is high and will spend their money when interest rates are low.  Hence when it comes to investing in CDs also the main focus is to make money when interest rates are high and thereby maximize the returns on their investments.  But this is not the only deciding factor as there are other options that need to be addressed as well.  For instance, there are short-term CDs as well as long-term CDs and it is up to the investors to decide what they want.

It is always best to assess the various options before one can take a call on whether to invest in short-term CDs or long-term CDs after taking a look at the advantages as well as the disadvantages of both.  This way one can weigh the pros and cons before making the decision.

Short-term CDs:

While investing in short-term CDs investors can make money within a short span of time while getting easy access to money when it is most needed.  The disadvantage with short-term CDs are that the interest rate offered is much lower than the interest that could be earned in long-term CDs and this could be an option that is less lucrative.

Long-term CDs:

While investing in long-term CDs investors can take advantage of the high interest rates that banks offer on long-term investments.  This is due to the fact that investors cannot access their money for such long periods and thereby lose out on other opportunities to reinvest that money.  Here the biggest drawback is that the investors cannot liquidate these deposits until the date of maturity.

Hence the investor has to not only shop around for the best short-term or long term CDs but also decide the options by taking into consideration the prevailing rate of interest. 

When the financial environment is such that the banks are unsure as to which way the interest rates are headed then it is better to keep the investment short term.  But if the banks are sure that the interest rates will go up then it is better to invest long term.  It is up to the investor to make the choice.

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