Short-term vs. long-term CDs: Which is better this August?

Certificate of deposit (CD) interest rates have come down slightly from the returns above 5% that were common last year, but they're still relatively high at present. Some of the best short-term CDs are offering yields near 4.50%, while longer-term CDs are paying over 4%.

At its July meeting, the Federal Reserve decided to hold interest rates steady, keeping its benchmark rate at a range of 4.25% to 4.50%. That's the same level it's been at since December 2024, as the Fed responds to a recent uptick in inflation and broader economic uncertainty. Even though the Fed doesn't directly set CD rates, its decisions influence what banks offer, especially on short-term CDs. Longer-term rates are shaped more by inflation expectations and long-term Treasury yields.

CD rates are still high, but many economists and rate-watchers expect them to drop soon. Amid this environment, should you lock in a longer CD now or keep things flexible with a shorter term? We asked some experts for their insight as to what could be the better choice this August.

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Short-term vs. long-term CDs: Which is better this August?

Before you decide, it helps to understand how short-term and long-term CDs differ, and why one might suit your needs better than the other:

• Short-term CDs: These accounts usually range from three months to one year. While they typically pay lower rates than long-term CDs, that's not the case right now (more on that in a moment). Since they mature sooner than a long-term CD, you can access your money earlier.
• Long-term CDs: The primary benefit of long-term CDs, which generally mature in three to five years, is that they allow you to lock in a rate for a longer period. That might be a smart move if you think rates will drop. But keep in mind, once your funds are locked, your rate is tied, you won't be able to take advantage of higher rates that may become available later unless you withdraw early and pay a penalty.

Knowing how soon you'll need the money can help you decide between a short- or long-term CD. "A short-term CD is a better fit if you expect to need the money soon or believe rates might rise," says Bree Shellito, a certified credit union financial counselor (CCUFC) at Ent Credit Union in Colorado Springs, Colorado. "A good example is someone saving for a house down payment in six to 12 months. A long-term CD makes sense when you want to lock in a decent rate for predictable income, like a retiree with enough liquid savings who wants to ensure their capital over the next three to five years."

Compare your current short-term and long-term CD offers here to learn more.

How current CD rates compare

As of early August, short-term CDs are often paying more than long-term ones. According to FDIC data as of July 21, 2025, 12-month CDs have the highest average rate at 1.63%, followed by six-month CDs at 1.52%. Even three-month CDs average 1.39%, which is slightly higher than the 60-month average of 1.33%. This inverted curve is the opposite of how CD rates usually work. Typically, long-term CDs pay more as an incentive to hold your money in the account longer.

It's worth noting, FDIC averages include large brick-and-mortar banks offering paltry yields as low as 0.03%. You can usually find top CD rates closer to 4.50% from online banks or credit unions, so don't get overly focused on the averages listed by the FDIC.

But why are CD rates currently slightly better for short-term rates? "Banks are dangling higher yields on six- to twelve-month CDs because traders expect the Federal Reserve to start trimming rates within the next year," says Bob Wolfe, a certified financial planner at HealthyFP in Conshohocken, Pennsylvania. "Lenders want deposits today but don't want to be stuck paying those rich yields for several years. When shorter maturities beat longer ones, it's often a sign that markets see lower rates on the horizon," says Wolfe.

Should you lock in a rate now or wait for rates to move?

If rates fall soon, as some indicators suggest, it might be prudent to lock in a long-term CD now while rates are still elevated. But it depends on your needs. If you just need a safe place to put your savings for a few months, you might take advantage of today's competitive short-term CD rates and you'll have access to your money sooner.

Christopher Stroup, founder of Silicon Beach Financial in Santa Monica, California, says trying to time the market is difficult and rarely pays off. Instead, he advises savers to choose a CD term based on when they'll need the money, their risk tolerance and their overall financial goals. "Consider how flexible you need to be and let your timeline, not market predictions, drive the decision. A balanced, goals-based approach beats guesswork every time," he says.

If you're not sure which term to choose, a CD ladder may give you the benefits of both. As Stroup notes, "A CD ladder spreads your investment across multiple maturity dates like six, 12, and 18 months so you're not locked into a single rate." For example, you might split a $6,000 deposit into three parts, depositing $2,000 in six-month, one-year and two-year CDs. Then, as each CD matures, you can either use the money or deposit it into a new account.

Stroup says laddering reduces your reinvestment risk while giving you more frequent access to your cash than a single long-term CD. It also gives you flexibility when rates fluctuate. You're less likely to miss out on a better yield or get stuck with a lower one.

The bottom line

Choosing the best CD term this August likely comes down to the rate, your financial goals, time horizon and how much flexibility you want. If you think rates will fall, locking in a long-term CD now could be a wise move. If you're not sure or anticipate needing access sooner, a short-term CD or ladder may make more sense.