The best short-term CD rates are better than long-term CDs. Here's why, and how to decide which term is right for you

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• Short-term CDs have high interest rates right now — the best CDs offer over 5.00% APY.
• Short-term CD rates are more competitive than long-term ones because there's an inverted yield curve.
• You might still prefer a long-term CD if you want to lock in a rate for a few years because savings rates are good overall.

Usually, long-term CDs pay higher interest rates than short-term ones. However, if you look at the best CD rates right now, you'll find 6-month, 1-year, or 18-month terms are actually more competitive than some longer-term CD rates.

Why is that? We'll explain how it works, and how to decide if a long-term or short-term fixed-interest account is a better option.

Why are short-term CD rates so high? 

Alvin Carlos, CFA, CFP, financial planner and managing director of District Capital Management, explains that short-term CDs have high rates due to the current economic environment. 

Carlos says investors are anticipating a recession down the road. Banks are paying lower interest rates on long-term CDs because they expect the Federal Reserve to cut rates in the future, which would also cause bank account interest rates to drop. To still provide competitive offerings, though, banks are offering high interest rates on short-term CDs.

Short-term CDs vs. long-term CDs: Which should you choose? 

While short-term CDs may offer better interest rates than long-term ones, you don't want to choose a term solely based on its rate. Instead, Carlos suggests thinking about whether you have a specific use for your money and matching your need with a certain term. 

"Let's say I need to buy a car in six months — then I would buy a 6-month CD. If I need the money for a down payment for one year from now, I would buy a 1-year CD. You're buying a CD term that matches your need, so you're not out there trying to guess what's right for you," says Carlos. 

Are you saving for a goal in the next three to five years? Carlos says it's still worth getting these longer-term CDs because rates are generally good overall.

"If the Federal Reserve cuts rates in the future, then maybe in one or two years, you're not going to be able to get a 4% APY CD," points out Carlos. 

If you are using CDs for excess cash and don't have a specific goal, Carlos generally recommends setting up a CD ladder. This allows you to diversify your CDs and have more flexibility in case you need to withdraw money at any point. With this savings strategy, you'll open multiple CDs with different terms and deposit your savings across these accounts.

Where to find the best short-term CDs 

If you are looking for a CD term under two years, these accounts are featured in our guides for best 6-month CD rates, best 1-year CD rates, and best-18 month CD rates:

• Bask Bank 6 Month CD: 5.10% APY
• Vio Bank 6 Month CD: 5.05% APY
• BrioDirect 1 Year CD: 5.25% APY
• Bread Savings 1 Year CD: 5.20% APY
• CFG Bank 18 Month CD: 5.25% APY
• Alliant 18 Month Certificate: 5.15% APY

Where to find the best long-term CDs 

If you would rather open a long-term CD, these accounts also offer generally good rates:

• Bread Savings 2 Year CD: 5.00% APY
• Signature Federal Credit Union 2 Year Certificate: 5.00% APY
• QFCU 3 Year Term Savings: 4.85% APY or 4.95% APY, depending on the balance
• CFG Bank 3 Year CD: 4.60% APY
• CFG Bank 5 Year CD: 4.50% APY
• Barclays 5 Year CD: 4.50% APY

The financial institutions listed above are all federally insured by FDIC or NCUA. The FDIC protects consumers if a bank fails. The NCUA manages credit unions and protects credit union members if an institution shuts down. Up to $250,000 per depositor is secure in a bank account that's federally insured by the FDIC or NCUA.