Short-term CDs vs. long-term CDs: Which will be better after the September Fed rate cut?

The interest rate cut that’s been looming for all of 2025 finally seems to be here. 

With a cut to the federal funds rate almost a certainty, many experts are now wondering whether it will be by 25 basis points or via a larger, half a percentage point. Either way, however, a reduction will undoubtedly lead to lower returns for savers. And that makes opening a certificate of deposit (CD) account now a bit more difficult than it was in the high rate climate of recent years.

Still, it hasn’t eliminated the benefits of CDs, either. Interest rates here are likely to remain competitive. Savers will just need to determine if they’re better served with a short-term CD or a long-term one after the September Fed rate cut – and ahead of additional cuts likely still to come. Below, we’ll break down the supporting reasons behind each unique savings account type now.

See how much interest you could be earning with a high-rate CD here.

Short-term CDs vs. long-term CDs: Which will be better after the September Fed rate cut?

The answer to this question is a subjective one, tied to multiple factors. Here’s what to consider now:

Why a short-term CD could be better after the September Fed rate cut

For starters, short-term CDs tend to have higher rates than long-term ones now, a reversal from other periods, when the rate trends were easier to predict. And this is unlikely to immediately change post-September Fed rate cut. 

But short-term CDs could also be the preferred CD account for savers thanks to the flexibility it offers. The maximum term length for these accounts is 12 months, meaning you’ll be able to pivot your savings strategy relatively quickly once the CD has matured. From there, you can take your earned interest and revisit your approach. And you won’t have to worry as much about any early withdrawal penalties, as it’s generally easier to see your account through to maturity in three months versus three years. 

Learn more about your top short-term CD options here.

Why a long-term CD could be better after the September Fed rate cut

Long-term CDs, on the other hand, could be better for many savers since it means locking in today’s still relatively high rates for a much longer timeframe. 

A September rate cut, after all, isn’t expected to be the only one and it may be the first of multiple issued just in 2025. That will eat away at the rate offers savers can find with CDs but it will be a moot point for those who locked in an elevated CD rate with a long-term account. With terms here lasting 18 months or longer, this could be the smart way to benefit from today’s high CD rates for an extended period, even if additional cuts are issued. And, thanks to that extended timeline, savers will earn more here than they would with a short-term account, assuming the interest is calculated with the same initial deposit amount.

Now may be the time for a CD ladder

Not sure if a short-term or long-term CD makes more sense for you after next week’s cut? Then don’t choose just one. Instead, consider “laddering” your accounts. This involves spreading your money among multiple accounts with different term lengths and maturity dates. This approach gives you flexibility to shift as the short-term CDs mature while ensuring that you benefit from the added interest-earning timeline long-term CDs offer. It will require a bit more work and strategizing but the end pay-off could be worth it for savers.

The bottom line

There is no one-size-fits all answer for savers trying to determine which CD term length is the best fit for them now, with rate cuts looming. Instead, savers will need to weigh the pros and cons of each in today’s rate climate and consider those against their goals and preferences. And, if they’re still unsure, mixing their money amid a variety of CD accounts with different term lengths may be the safer and, potentially, more lucrative approach.