$100,000 short-term CD vs. $100,000 long-term CD: Which will earn more interest now?
Summary
In today's high interest rate situation, long-term certificates of deposit (CDs) pay more interest than short-term CDs because the money stays in the bank longer. For example, $100,000 in a long-term CD can earn thousands more in interest compared to short-term options.Key Facts
- Inflation is about 4%, higher than the Federal Reserve's 2% goal.
- The Fed is unlikely to lower interest rates soon, keeping rates high.
- Short-term CDs (3 to 12 months) offer annual interest rates around 3.9% to 4.1%.
- Long-term CDs (18 months to 5 years) offer similar or slightly higher rates (about 4.09% to 4.16%).
- A $100,000 investment in a 5-year CD could earn about $22,545 in interest by maturity.
- A $100,000 investment in a 3-month CD could earn about $961 in interest by maturity.
- Long-term CDs earn more overall due to longer interest compounding time.
- Early withdrawal penalties on CDs can be costly, so investors should plan to keep the money in until maturity.
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