From what I understand, long term certificates of deposit (CDs) typically offer higher interest rates than short term CDs. They do that to give you a reason to lock up your money for a longer period of time.

However, right now I see many financial institutions are offering CDs with APYs that go lower as the CD term gets longer. Here is an example from Fidelity:

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Is there any reason to put your money in a longer term CD that pays less interest than a shorter term CD?

  • To plug in real numbers, I saw this with Citibank: For a year or 18 months, you get 4.05%; for two or three years, you get 2.5%. (For month ranges in between any of those, you only get .1%.) Commented Jun 30, 2023 at 18:07
  • Citibank offers pathetically low rates. Consider using a broker such as Schwab or Fidelity. They currently offer 5.25% for three month CDs, increasing incrementally for 6, 9 and 12 months which is 5.4% Commented Jun 30, 2023 at 19:26
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    @BobBaerker Fidelity does show a decreasing APY the longer the term.
    – 7529
    Commented Jun 30, 2023 at 20:15
  • When I looked at Fidelity and Schwab yesterday, both Treasuries and CDs increases every quarter from 3 months out until 12 months. After that, they decreased. Commented Jul 1, 2023 at 17:01

2 Answers 2


Taking a longer-term CD with a lower interest rate could make sense if you expect CD interest rates to drop in the near future. Suppose you could get a 6-month CD with a 5.1% interest rate, or a 12-month CD with a 5% interest rate. If the 6-month CD interest rates fall to only 4% 6 months from now, you'd get 6 months at 5.1% and 6 months at 4% with two short-term CDs, which is worse than if you had locked up 5% for the full 12 months with one long-term CD.

Basically, there is no guarantee that you can get the higher shorter-term interest rate for the full duration of the longer-term CD. It can in some cases be advantageous to lock in a rate that is currently lower for a longer term, in the hopes that the rate becomes the relatively higher one in the future as short-term rates fall.

  • 7
    Essentially, the banks are betting that the current high interest rates are a temporary situation (due to the Fed's efforts to slow down the economy), and things will return to "normal" in a couple of years. So they don't want to lock in high interest rates.
    – Barmar
    Commented Jul 1, 2023 at 18:31
  • 2
    This is very close to the difference between a variable rate mortgage vs a fixed-rate long term mortgage, except you're receiving interest instead of paying it. Having lots of short CD is similar to having a variable-rate mortgage.
    – Nelson
    Commented Jul 3, 2023 at 0:49
  • Note that none of the above logic applies if the CD is callable, since in that scenario the bank could close the CDs once interest rates fell.
    – Brian
    Commented Jul 5, 2023 at 13:10

Note that many high-rate short term CDs are promotional offers, not renewable at that rate, and only available if you deposit "new money" (from another bank) to open them. The goal is to capture more of your banking business.

(Just opened a CD ladder and a higher-rate savings account myself, and ran into that marketing. Had to take the "normal" 6-month CD, a point lower than the special 6-month offer being advertised, if I wasn't willing to play multiple bank transfer games. And I wasn't willing to cheat past their clear intent, especially since this was a credit union.)

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    That also does happen, but there is a real inverted yield curve right now apart from any promotions: investor.vanguard.com/investment-products/cds It's actually flatter today, was more pronounced a couple weeks ago.
    – Ben Voigt
    Commented Jun 30, 2023 at 19:12
  • The yield curve isn't inverted today. At Schwab and Fidelity, yield increases from 5.25% to 5.4% across 3, 6, 9 and 12 month CDs. This is also the case with Treasuries which range from 5.33% up to 5.45% for the same time period. Commented Jun 30, 2023 at 19:30
  • @BobBaerker if you looked at Ben's link, it shows the inversion happens before year 2, with decreasing rates beyond? Commented Jul 1, 2023 at 4:41
  • My comment was in response to keshlam who mentioned short term CD 's and that he took a six month CD at a point lower. Voight's long term numbers are not applicable to that. Commented Jul 1, 2023 at 17:09
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    @BobBaerker: keshlam's saying it was a point lower than the credit union's promotional offer, not that it was a point lower than some CD with a different term would have been. Commented Jul 1, 2023 at 21:54

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