Choosing between a long term and a short term certificate deposit

A short term certificate of deposit as the name indicates has a shorter maturity period than a conventional long term certificate of deposit. There are a number of things to keep in mind while deciding which one to go with while investing your hard earned cash. 

The following are the various criteria that you have to take into consideration while you are making your decision as to which type of certificate of deposit to take up 

• The first and most obvious criterion is whether or not you will require the money immediately. If you know that you will need the money pretty soon, then it is better to go for a short term certificate of deposit.
• You will also need to factor in the uncertainty about your income. If you have a steady income or if there is more than one earning member in the family, you can afford to lock your savings in a long term certificate of deposit. If you are not sure about your job security or if you are in a business line with uncertain payment patterns, it is always better to go for short term certificates.
• Compare the terms and conditions between the various certificates. If you are going for a long term certificate, try to find out the penalty involved in withdrawing money before it matures. If this penalty is low or negligible, it does not make sense to go for a short term certificate with a lower interest rate. Also find out if the long term certificate allows you to withdraw certain amounts of money without having to pay a penalty at all. This is like a liquid certificate of deposit which has become pretty popular these days.
• Compare the interest rates being offered by both terms. If short term certificates offer a higher or almost similar interest rate as the long term certificate it is obviously better to go with the short term certificate. But if the long term certificate has a better interest rate, then you will need to carefully weigh out your options.
• Think about the future of your investment. If you have a feeling or the knowledge that the market rates are going to go up in the near future, it is better to go with short term certificates. But if you are aware that the market rates are going to go downhill, it is better to stay invested with a long term non floating certificate of deposit.
• Finally, ensure that you shop around a bit before you make a decision. The interest rates are not the sole criteria based on which you have to make your decision. Most financial institutions offering very high interest rates will have dubitable reputations if you would care to find out. It is important to be able to trust your bank given that you are going to give up control over so much of your money for such a long period of time.