The primary benefit of a longer-term CD is the ability to earn interest for a greater period of time.
What are the benefits of short-term CDs?
With a short-term CD, you’ll have access to your money sooner than with a long-term CD.
All CDs are subject to penalties for early withdrawal. So if you’re concerned about your money being tied up for too long, a shorter-term CD or CD laddering might be the best option for you.
With CD laddering, you open multiple CDs that mature at staggered dates rather than one long-term CD. The benefits of this approach are having access to your money at frequent intervals and, if interest rates go up, you’ll have the ability to take advantage of the higher rates.
For example, let’s say you have $5,000 you want to put in CD accounts. You could invest $1,500 in a 12-month CD, $1,500 in an 18-month CD, and $2,000 in a 36-month CD. As each CD matures, or the term is up, you can invest it in a longer-term CD, and repeat this as each CD matures.
So, instead of tying all your money up for 36 months, you’ll have access to funds periodically and be able to take advantage of higher rates if they become available.