Should You Invest In a 10-Year CD?

A bright spot in the Fed’s rate hikes is higher returns on savings accounts, including certificates of deposit. In 2022 — the year the rate hikes started — the average national savings account rate jumped from 0.06% to 0.30%. It’s hovered at 0.46% since October 2023. Higher rates make savings accounts more attractive, especially if you’re looking for a safe place to keep your money.

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The Fed expects to begin lowering rates this year, a decision that may have you wondering if it’s time to lock in the higher rates with a 10-year CD. Let’s take a closer look at the pros and cons.

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Reasons to Invest in a 10-Year CD

A CD can add diversification to your financial portfolio, keeping some of your cash out of riskier investments. Longer terms — like 10 years — may be attractive savings options for purchases you plan to make in the future, like a down payment on a house, your child’s education or retirement expenses.

Locked in Rate

If you open a 10-year CD now, you can lock in the current interest rate. When rates start to fall, you’ll earn less money in your savings account, but the CD rate won’t change.

Stability in an Uncertain Market

A certificate of deposit is a stable and predictable investment. You know the rate won’t change during the CD term, and you can calculate exactly how much money you’ll earn in interest.

Financial Discipline

A savings account is convenient because you always have access to the cash when you need it, but putting the money in a CD may help you leave it alone. Since you’ll pay a penalty for an early withdrawal, a CD can help you steer clear of impulsive purchases.

Reasons to Avoid Investing in a 10-Year CD

Like any investment, a 10-year CD has its downside. It’s important to consider what you give up when you open a long-term CD.

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Access to Cash

A 10-year CD is less riskier than the stock market, but a decade is a long time to wait for your cash. This is not the place to keep your emergency fund or money you anticipate needing within the next few years.

Early Withdrawal Penalties

Before opening a CD, find out what penalties the bank charges if you withdraw money before the end of the term. Compare these penalties across banks, so you know exactly how much you will lose if you cash in early.

Rates

A 10-year CD typically has a lower rate than shorter term CDs because the longer term is riskier for the bank — especially when rates are high. For example, Discover pays 3.80% APY for a 10-year CD, but it pays 4.00% APY for a five-year CD and 5.00% for a one-year CD.

Final Take

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The decision to open a 10-year CD is personal and dependent upon your financial goals and risk tolerance. If you don’t need the cash soon and can lock in an attractive rate, a CD with a longer term CD may be worth considering.

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This article originally appeared on GOBankingRates.com: Should You Invest In a 10-Year CD?