Getty Images
If you’ve ever opened a certificate of deposit (CD) account or have been considering one recently, you have two primary types to choose from. A long-term CD has an account term that matures in 18 months or longer (think multiple years) while a short-term CD will mature in under 12 months (think anything under a year).
Both CD terms have unique advantages and drawbacks, typically specific to the saver in question. While short-term CDs were often advantageous in the rising interest rate climate of 2022 to 2023, their benefits seem less clear now that inflation has dropped from its 2022 high point and interest rate cuts have been issued.
For many savers, a long-term CD is the clear, preferential option right now. But many savers aren’t all savers and some may still find the short-term option better for their financial situation. Below, we’ll break down why a short-term CD could still be valuable, even in the rate climate of 2025.
Start by seeing how much you could be earning with a short-term CD here.
Is a short-term CD worth it for 2025?
Here are three reasons why a short-term CD could still be advantageous for 2025:
You want flexibility
CDs, by their nature, restrict flexibility. A fixed rate is attractive because it will let you earn the same return in the face of rate volatility but it will only do so by restricting access to the money for the full term. If you want to earn today’s high rates, however, and still maintain some, limited flexibility, a short-term CD can be worthwhile. With rates higher than most long-term CDs (a rare circumstance) and terms as short as three months, this unique account type can still be the right fit for many savers. But because CD rates are constantly changing, it makes sense to open one sooner rather than later.
Get started with a short-term CD now.
You’re looking for a quick return
Want to earn a few hundred dollars (or more) relatively quickly right now? Then a short-term CD may make sense for you. With a $10,000 deposit, for example, you’ll earn approximately $230 with a 6-month CD at a rate of 4.61%. Deposit more and you’ll earn more and it’ll be tacked on to your initial deposit in less than a year. And if you shop around for lenders and rates (and consider an online bank) you may find an even higher rate, making this account type ideal for savers who want to make a quick profit and then shift their funds elsewhere.
You think rates could rise later in the year
A long-term CD offers extended protection. But it also has limited opportunities for savers looking to capitalize on changes in the rate climate. Although interest rate cuts still appear likely for later in 2025, that forecast could easily change. Inflation has ticked up in three consecutive months, causing the Federal Reserve to temporarily halt its interest rate cut campaign. And if continues to rise that halt may become permanent or rates could even rise again. If you’re a saver who foresees that scenario, then, it wouldn’t make sense to lock your funds in a long-term CD. Instead, a short-term CD may make more sense, allowing you to shift the funds elsewhere when it matures in three, six or 12 months.
The bottom line
A short-term CD can still be valuable in 2025 for some savers. If you’re looking to maintain flexibility, a quick return and think interest rates could rise again later in the year, this specific CD type is worth pursuing. Just be sure to calculate the right deposit amount to circumvent having to pay any early withdrawal penalties and remember that any CD interest earned has tax consequences that should be accounted for in advance.
