$20,000 long-term CD vs. $20,000 short-term CD: Which earns more now?

Savers can stack up significant savings by putting a portion of their money into high-rate CDs right now. Getty Images

It takes time, money and a lot of effort to save money. And it's taken more of each of those three in recent years, thanks to a combination of elevated interest rates, costly inflation and stock market uncertainty. But if you've been able to save a substantial amount of money, and especially if you've been able to accumulate a large, five-figure sum, you'll want to make sure you get a substantial return on your investment. It wasn't easy saving, for example, $20,000, so you shouldn't just deposit it into any regular savings account (and you should avoid traditional ones, which come with rates under 0.40% right now).

For many savers, a certificate of deposit (CD) account could be the new, smart home for their money. These accounts are FDIC-insured up $250,000 each, come with high interest rates and those rates are fixed, meaning that they'll remain the same during the full CD term even if rate cuts are issued during that time. But with terms ranging from a few months to multiple years, savers should first consider the interest-earning potential before getting started. Between a $20,000 long-term CD and $20,000 short-term CD, then, which will earn more interest if opened now? Below, we'll complete the calculations.

Start by seeing how much interest you could be earning with a high-rate CD here now.

$20,000 long-term CD vs. $20,000 short-term CD: Which earns more now?

Traditionally, higher interest rates and, thus, greater interest earnings, were associated with long-term CDs. Since savers had to commit to keeping their money in these account types for extended periods, they were often rewarded with higher rates. But that hasn't been the case recently as market uncertainty has caused banks to reverse course and offer higher rates on short-term accounts, instead. 

Still, higher short-term CD rates don't automatically negate the extended interest earnings a long-term CD can accumulate, even if done so at a slightly lower rate. Here, then, is what both $20,000 long-term CDs and short-term CDs can earn now, tied to readily available rates for each and on the assumption that no early withdrawal penalties or fees eat into the interest earned over time:

Long-term CDs:

• $20,000 18-month CD at 4.26%: $1,291.52 for a total of $21,291.52
• $20,000 2-year CD at 4.20%: $1,715.28 for a total of $21,715.28
• $20,000 3-year CD at 4.25%: $2,659.21 for a total of $22,659.61
• $20,000 5-year CD at 4.20%: $4,567.93 for a total of $24,567.93

Short-term CDs:

• $20,000 3-month CD at 4.40%: $216.46 for a total of $20,216.46
• $20,000 6-month CD at 4.49%: $444.07 for a total of $20,444.07
• $20,000 9-month CD at 4.26%: $635.66 for a total of $20,635.66
• $20,000 1-year CD at 4.40%: $880.00 for a total of $20,880.00

As can be seen from the above calculations, long-term CDs all offer savers higher returns on a $20,000 deposit than short-term CDs do, even if short-term CDs have rates of 4.40% or higher right now. Still, don't rush into a long-term CD, especially with a $20,000 initial deposit, before first calculating your ability to keep the money in the account for the full term. Withdrawing it prematurely could result in a penalty that wipes out all of the interest earned on the account to that point.

Learn more about your CD options by comparing short-term and long-term rates here now.

The bottom line

While short-term CD interest rates can be more than 25 basis points higher than long-term ones, the latter type will allow savers to earn substantially more interest over time, which is a major advantage for those leery of locking away $20,000 for an extended period. Still, with a fixed rate, an accurate way to determine interest earnings and the likelihood of rate cuts to be issued later this year, a long-term CD may be one of the better ways to grow and protect that $20,000 both now and into the future.