What’s Smarter in 2025: Short-Term or Long-Term CDs?

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Why CD Rate Guarantees Are a Superpower When Rates Are Falling

If you have cash savings you don’t need for a while, certificates of deposit (CDs) provide an opportunity to earn more than you can collect from a savings account by paying you a fixed interest rate that won’t drop for the duration of the CD term. While even the best high-yield savings account rate can be lowered at any time, whatever CD rate you sign up for will be yours to enjoy until the CD matures—whether that’s a short 3 months or a lengthy 10 years.

As you can guess, a CD rate lock is particularly valuable when you can snag a high annual percentage yield (APY) at a time when future rates are expected to move lower. For instance, if you lock in today’s top guaranteed 2-year rate of 4.45%, but the best savings account rate falls to the 3% range, or even 2%, during that period, you’ll be happy to be earning a continued 4.45% CD return until 2027.

Potentially declining interest rates is precisely the situation we’re in right now. In fact, the best CD rates are already down from the heights they reached in 2023 and 2024. But going forward, rates on savings, money market, and CD accounts are generally expected to fall further.

That’s because the Federal Reserve has pivoted to a rate-cutting phase over the last few months. After holding the federal funds rate at a 23-year high from July 2023 until September 2024, the Fed has since cut its benchmark interest rate by a full percentage point. And when the Fed cuts its rate, banks and credit unions are triggered to lower their consumer deposit rates.

If the central bank does indeed lower the fed funds rate in 2025 and beyond, we could see much lower savings and CD rates in the future. But how sure is it that the Fed will lower rates? And by how much? Let’s look at what’s currently predicted, why there’s uncertainty, and how to make a CD-term decision in light of it all.

Today’s Rate Predictions for 2025 and 2026

Once per quarter, the Federal Reserve’s rate-setting committee publishes its “Summary of Economic Projections,” which includes a useful “dot plot” forecast of where committee members expect the federal funds rate to be at the end of this year and the next two calendar years. In the most recent dot plot, released Dec. 18, the median Fed prediction was for two quarter-point rate cuts (0.50 points total) by the end of 2025, and then the same reduction in 2026.

But that forecast is more than a month old, and various inflation and labor statistics have been released since the Fed met. As a result of some of these readings, today’s market predictions are slightly softer than the Fed’s December forecast.

According to the CME Group’s FedWatch Tool, interest rate futures traders are currently split on whether we will see two rate cuts this year. Traders are pricing in about a 47% chance that the Fed will make either zero or one cut by the end of the calendar year, with 31% pricing in two cuts and 22%, three or more cuts.

However, December 2025 is many months away, and 2026 is even harder to predict, with numerous economic data releases that could alter the course at any point. So today’s predictions should be treated merely as best guesses based on what the market knows today.

Areas of Uncertainty Cloud the Rate Forecasts

Making Fed interest rate predictions more than a month ahead is always a tentative exercise, as the central bank makes each rate-setting decision meeting-by-meeting based on the freshest economic data. So a forecast for many months or a year down the road is even more vulnerable to error.

But right now, some added layers of uncertainty are making predictions harder. First, inflation has proven stubborn. Though the Fed’s rate-hike campaign has returned the inflation rate to sub-3% levels, the Fed has not yet succeeded in reaching its 2% target. It still aims to do so, but so far, that goal has proven elusive.

Second, the incoming Trump administration has suggested various economic policy changes that could have notable impacts on inflation, and in turn, the Fed’s course of action. For instance, President Trump’s suggestion that he will impose new tariffs could have a sizable effect. However, it’s unknown at this time whether tariffs or other Trump proposals will materialize.

So What CD Term Should You Choose?

With its economic and political unknowns, the current rate environment is certainly a factor to consider when deciding how long a CD rate lock you’d like to secure. But first and foremost, CD shoppers should think hard about their financial timelines. That is always the first step when committing funds—and it’s essential when opening a CD since cashing in before maturity would trigger an early withdrawal penalty that reduces earnings.

Once you’ve decided how long you’re comfortable locking into a CD, the next step is determining what you think is most likely for future interest rates. If you feel confident the Fed will keep lowering rates over the next one, two, or even three years—bringing it further down from its 23-year peak—then a multi-year CD will likely deliver the best earnings boost on your savings.

But if you’re feeling very uncertain about what 2025 will bring, and can imagine the Fed’s rate-cut phase stalling—due to persistent, or even increasing inflation—then a shorter CD might be a wiser move. Though it seems unlikely, rising rates cannot be ruled out, meaning future CDs could pay more than you can lock in today.

In the end, no one can reliably predict what will happen to interest rates in the next year or two. But it does stand to reason that, given how historically high interest rates are right now, the odds of a decline seem higher than the probability of an increase. And if you can lock in a guaranteed 4%-plus return, with no risk and no uncertainty, that’s a likely win in most scenarios. So stretching to a CD term of at least a year, and maybe even 2–3 years, seems like a reasonable bet at this time.

How We Find the Best Savings and CD Rates

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account’s minimum initial deposit must not exceed $25,000. It also cannot specify a maximum deposit amount that’s below $5,000.

Banks must be available in at least 40 states to qualify as nationally available. And while some credit unions require you to donate to a specific charity or association to become a member if you don’t meet other eligibility criteria (e.g., you don’t live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.