Is a Long-Term CD the Best Option for Saving?
CDs offer good rates and guaranteed returns. However, are they the best option for longer range savings goals?

Picture this: You're near retirement. In a few years you'll be able to take dream vacations, spend more time with your children and grand kids, and take up some hobbies you've been forgoing. And if you're planning on a larger purchase in the next three to five years, you might consider savings vehicles to help you get there.
One of the best saving options is a certificate of deposit. A CD is an investment option that allows you to store your money in it for specified term. Terms range from 3 months to 10 years. Perks of choosing CDs are they offer good rates of return, they're easy to set up and they offer guaranteed returns on investment.
However, it's important to consider the other side of that too. Before parking your money in a CD, consider these three risks.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. You could miss out on higher interest rates
One of the benefits of a CD is it offers a fixed interest rate. Currently, that isn't bad, as you can earn over 4% on CDs ranging from three to five years.
See our Bankrate tool to compare the top rates today:
There's good and bad news, though. The good news is the Federal Reserve didn't cut interest rates at its latest meeting. It means savings rates on CDs and high-yield savings accounts didn't dip.
However, there's the other side of the coin. Inflation continues to rise, meaning the Fed might not cut rates in the future. In fact, there could be a situation where they reverse course and increase rates, similar to how they did the past few years. So if you lock in a rate now, you could miss out on a higher rate in the future.
2. Inflation could outpace earnings
The core inflation rate sits at 3.26% currently. It means if you're able to lock in a longer-term CD at a rate above this, you're outpacing inflation.
The problem is inflation doesn't show signs of slowing down. In fact, it's increasing, thanks to rising food, energy and goods prices.
There are many factors contributing to increased prices. The bird flu has raised egg prices significantly, while president Donald Trump's tariffs could increase grocery and housing prices. Therefore, if inflation continues to rise, it can diminish or eliminate the returns you have on a longer-term CD.
3. You could miss better opportunities
Tying up your money in a CD is beneficial in that you won't be able to use it until your term expires. If you withdrawal your money early, many banks will close the CD and assess you an early withdrawal fee, offsetting some or all of the interest earned on your CD.
Moreover, by tying up your money for a long time, you could be missing out on other opportunities that grow your money quicker. Opportunities in the stock market do present higher risk, but they also come with better returns historically.
Therefore, you'll want to tow the line between how much risk you're willing to accept in return for higher rates of return.
Short-term alternatives
One option is to try short-term CDs while we wait to see how the market responds. You can get CDs in one-year increments. It allows you to take some of your money to earmark it for future purchases, but it also opens the door to liquidity in the near future. If rates drop more or a better investment opportunity presents itself, you'll be able to capitalize quicker.
Another choice is to wait it out and put some of your money in a high-yield savings account. The benefits to this approach is you'll earn a similar rate of return a CD offers, with the flexibility to pivot investments any time you need to.
The difference being savings accounts have variable interest rates. So, if the Fed does cut rates again, your rate will likely drop, putting you in a situation where inflation could eat up all of your interest. The good news is you can adjust accordingly much quicker with a savings account. With a CD, you must decide whether to keep it or pull the funds and eat the cost.
The bottom line
Long-term CDs offer savers a good rate and a guaranteed return on investment. Before signing up for one, keep these risks in mind so you'll feel more comfortable about your choices.
Furthermore, you might consider short-term alternatives like a high-yield savings account or a shorter term CD. With both, you can ride out the market and have quicker access to cash if better opportunities present themselves, while reaching your savings goals.
Related content
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Sean is a veteran personal finance writer, with over 10 years of experience. He's written finance guides on insurance, savings, travel and more for CNET, Bankrate and GOBankingRates.
-
How to Stay Safe During Summer Storms: What to Know About Lightning Risks
Learn how to protect your home, electronics, and personal safety from lightning strikes this summer — plus what your insurance might cover.
-
Ask the Editor — Tax Questions on Disaster Losses and more
Ask the Editor In this week's Ask the Editor Q&A, we answer tax questions from readers on paper checks, hurricane losses, IRAs and timeshares.
-
This Savings Account Earns You More Than $4,000. Here's How
See how a jumbo CD can help you reach your savings goals quicker.
-
These Are the Key Tariff Issues to Watch in Coming Months
While they're not dominating headlines right now, tariffs are not over. Some key dates are coming up fast that could upend markets all over again.
-
What to Know About Treasury Inflation-Protected Securities (TIPS)
Understanding what Treasury Inflation-Protected Securities (TIPS) are and how to use them in a portfolio.
-
T-Mobile Offers Senior Phone Plans: Are The Perks Worth the Price?
T-Mobile has three senior phone plans. See which perks you receive with each.
-
Should You Switch to a Budget Wireless Carrier? What to Know About Trump Mobile and Other Low-Cost Options
With new names like Trump Mobile entering the market, many consumers are curious about affordable wireless plans. Here's how to tell if switching to a budget carrier could actually save you money — and what trade-offs to expect.
-
Bill Bought a Fridge, and Then His Nightmare Began
A Lowe's customer reached out to me after he encountered the retailer's 48-hour return window for major appliances when his brand-new fridge turned out to be defective.
-
Savvy Marketing Tips for Financial Pros From a Financial Pro
These strategies for marketing, client acquisition and retention can help financial professionals elevate their business and production.
-
Taste the Nation: Five James Beard Award–Winning Restaurants Worth Traveling For
From coastal kitchens to mountain towns, these celebrated restaurants don't just serve meals — they anchor destination-worthy trips for food lovers.