How to decide between short term and long term CD's

The best way to decide whether a short term cd or a long term cd is right for you.

Difficulty: Moderate

Instructions

Things You'll Need:

• Bank Account
• Money

1. When deciding between short and long term CD's there are several factors that must be considered. I want to take a look at each of these factors and which type of CD might be best for you in each of these situations.

2. The first and most obvious factor is how soon you will need the money:
   
   If you need the money soon and can't afford to have it tied up, you should go with a short-term CD.

3. The next factor is the uncertainty surrounding your current income:
   
   If you feel certain that this CD will not be needed for quite some time, a long-term CD may be right for you. If you are unsure when you'll need the CD, a short-term CD is the way to go.

4. The next factor is the current market rates:
   
   If short-term rates are just as high if not higher than long-term, then it makes a lot more sense to go with a short-term CD. If the long-term rates are far better than the short-term ones, a long-term CD is often the way to go.

5. The final and most difficult factor to predict is the future of interest rates:
   
   When interest rates are expected to decline in the coming months it is a great idea to lock in a long-term CD. When interest rates are expected to rise, it is best to just have the short-term CD so you can pick up on the higher interest rates when it matures.

6. Shop around when you are looking for CD rates. Don't necessarily go for the highest rate, but go for the highest rate with the most reputable bank. CD rates that look too good to be true usually are.

Tips & Warnings

• If you are in a promotional CD, don't forget to move your money at the end of the term or you will likely be rolled over into a much lower rate.
• Not paying attention to the current interest rate on your CD can cost you a lot of money in the long run!

[luv2blog]

on 7/18/2008 Very good article. ^5.