Why the 10-Year CD Might Be the Worst Bank Product Ever

The 10-year CD rate might not be worth the wait.

A 10-year certificate of deposit is an investment — designed to mature in 10 years — that offers a safe, predictable return. Unlike stock investments, the FDIC insures CD returns.

Because a 10-year bank CD requires leaving your money in a financial institution for an entire decade, it might actually pose some risk. Locking in a CD interest rate for 10 years is safe, but it prevents you from taking advantage of the best interest rates if they begin to rise.

Ten-year CDs come with other issues, as well. Keep reading to see what they are and how they work — and find alternatives to this type of investment.

10-Year CD Rates From Top Banks

To get an idea of how much interest you could earn on a 10-year CD consult this chart that show what five different banks are offering. Note and compare the rates for money market accounts and one-year CDs.

10-Year CD Rates vs. Other Banking Product Interest Rates
Bank NameMoney Market APYMoney Market Minimum1-year CD APY1-year CD Minimum10-year CD APY10-year CD Minimum
DiscoverDiscover Bank1.05%$2,5001.50%$2,5002.35%$2,500
 Elements Financial0.05%$00.50%$1,0002.30%$1,000
BofABank of America0.05%$250.03%$1,0000.75%$1,000
 North American Savings Bank0.50%$1,0000.35%$1,0001.16%$1,000
ChaseChase Bank0.03%$00.02%$1,0000.90%$1,000
Rates accurate as of Oct. 15, 2017; interest rates might rise with higher-than-minimum deposits.

Inflation’s Impact on a 10-Year CD

Inflation can have a significant impact on the value of a 10-year CD yield because it can reduce the purchasing power of any interest you’re paid over the decade. To find out how much you’ll actually earn in interest, you must subtract Consumer Price Index increases from your current rate to determine how much you have after inflation, which is called the “real rate of return.”

Even if you’re lucky enough to lock into the highest 10-year CD rates available, your real yield might be lower than you expect if inflation is high. Inflation is a variable you can’t accurately predict.

Find Out: Best CD Rates From Vanguard, Fidelity and Other Brokerages

Alternatives to the 10-Year CD

Should you need access to your cash or want a better return, opening a high-yield savings account or investing in the stock market — or even investing in a shorter-term, high-yield CD — might be better than purchasing a 10-year CD. But if CDs are your low-risk investment of choice, you can employ some CD strategies to maximize your earnings. Here are three CD strategies you can use to earn more:

1. CD Laddering

CD laddering is an option if you like the idea of locking in a rate but don’t like not having access to your money for a decade. When you form a CD ladder, you purchase short-, medium- and long-term CDs — and they’ll mature at staggered intervals.

For example, if you invest in 12-, 24- and 36-month CDs, your 12-month CD will be first rung on your ladder and mature in one year. After the one-year CD matures, you can reinvest that money in a new five-year CD.

When the second year ends, you can continue reinvesting the money from your original two-year CD in another five-year CD. Your ladder will eventually consist entirely of long-term CDs, which earn the most interest. CD laddering makes it easy to start slowly without locking up all your funds for years and years.

Learn More: Why It’s Smart to Ladder Your CD Accounts

2. Bump-Up CDs

Bump-up CDs — also called step-rate CDs — might be a good option if you like the security of a guaranteed return but want to be able to withdraw some funds without being penalized. Bump-up CDs allow you to increase your rate on a CD if interest rates rise.

Others have built-in, automatic rate increases that kick in over time. Typically, there are limits to how often you can raise the rate.

Wells Fargo offers a 24-month, step-rate CD that enables you to withdraw money once every six months without penalty as long as you leave your original investment in the CD. It also has guaranteed rate increases at seven-, 13- and 19-month intervals — and a minimum opening deposit of $2,500.

3. Bonds

Bonds offer less risk than stocks but more risk than CDs. Bonds are essentially loans that you provide to various entities from government to private business. In exchange for the loan, the borrower pays you interest.

The riskier the bond you purchase, the higher the return you earn. That means you’re likely to make more money from an entity that’s not as creditworthy as others. But in doing so, you also take on more risk that the entity will default on its obligation.

Find Out: How to Choose the Best Bonds for Your Financial Plan

Decide If a 10-Year CD Is for You

In short, the 10-year CD is not an ideal option for people who want to maintain liquidity. If you need an insured investment that will mature in 10 years — for example, you might have college costs around that time — a 10-year CD can be a viable option.

To get a greater return, however, you’ll probably benefit from investing in stocks and bonds. For security and greater liquidity, consider a high-yield savings or checking account. Finally, if you do choose to go with a 10-year CD, shop around for the best bank CD rates.

Natalie Campisi contributed to the reporting for this article.

  • First, yes there is interest rate risk if rates go up, but there isn’t principal risk. When investing in the stock market, your principal is at risk. Depending on your horizon for the need of the funds, a large drop may not be able to be made up.

    Second, if you are smart about which 10-year CDs you are buying, you can gain a slight hedge by using long-term CDs that don’t have excessive early withdrawal penalties. Yes, there is the risk of a bank not allowing you to close the CD early or even changing the penalty, but that risk is quite small.

    Third, you need to compare apples-to-apples. You can’t average the inflation over the last 10-years and use that to demonstrate why a 2.45% over the next 10-years is bad. In 2007, you could have had a 10-year CD for near 6.00%. Currently that would look pretty good.

    You don’t know the future. Do the best with what today has for you. Sometimes that is a 10-year CD.

    • valsvet

      I agree with you 100%. The author, while making a remark about the stock market risk, should not in my opinion even compare CDs to equities. FDIC insured CDs are the best tools for capital preservation and income stream. I am 63, planning to work full time till 68. I just bought $200k worth of 10 year CDs at Fidelity yielding 3.30%. I also refinanced (in Feb 2013) my $120k mortgage at 2.75% (10 year). The rest of the money is in equities, junk bonds, short and med term bonds and 5% in gold and energy, $500k all together including CDs. Here is the way I see it: in 10 years I will have $266,000 guaranteed + whatever the rest of my money makes or loses + whatever I manage to save while still working (401-k). Should work for me.

    • gman

      I agree 100%…back in 08 when everything flew apart and I had a 7% CD with Capital One I wish I had my whole portfolio in Cap One CDs…My avg would be about the same or better with the CDs plus I would have gotten a lot more sleep.

    • gman

      Also would like to comment that all this diversification talk is confusing…it seems to me you should either stay all in cash and bonds or all in stocks as if you put 50% in each when one goes up the other goes down…negating the returns anyway.

      • Mike Daniel

        You really don’t understand diversification.

  • Joe Fox

    What about money market? Is that preferable to a CD or a savings account?

    • Bea Marino

      I don’t know of any money market account that is going to give you 2%. The good thing about the MM is that you won’t have an early withdrawal penalty. I think MMs are good for storing money you might need for emergencies etc. In these terrible interest rate times, I would not want to have to go any lower than 2% for a CD and hopefully not as long out as 10 years. These are really bad days for savers who need to be risk-free.

  • timmy

    I just bought a 10 year CD that pays 3.3 percent for 10 years. With this investment, I’ll earn about $6700 on my $20000 investment over the next 10 years vs. zero in cash. Listen, I’m 54 years old and I will tell you that the last 10 years went by pretty fast and I think that I will really enjoy that $6700 when I’m 64. Of course, I will hopefully also make money on the dividend paying stocks that I own, but this comes without risk. You seem to be assuming that rates are on the rise. If you look at the history of rates and inflation, you will see that they move slow. I’ll take the 3.3% FDIC insured.

    • Cosmo Kramer

      I agree a million percent. It’s going to be a long long time before we see 5 percent interest rates. A 10 year CD is not a bad investment currently, it’s an excellent place to put your non-risk investments.

  • atl9pdnp

    all fine and dandy – nice math… but if you were invested in a 10 yr CD in 2000 or 2009 vs having your money in the stock market – you would have made money and preserved principle vs losing your shirt and praying that the market would return… and yes it did over a period of several years. If you are older, the advice in this article is very bad. If you are in your 20’s or 30’s and don’t have to worry about paying or your kids college or getting laid off then go for it… btw never put all your eggs in one basket – a mix is best in any situation.

  • Mom Prom

    Discover offers 2.10 for 5 years and 2.30 for 10 years. Better to invest for 5 years and then after that choose to do another 5 years or choose to do something else. Only way 10 years makes sense is if its at 4%.

  • Gary C

    10 yr isn’t as bad as you think…there are places you can get 2.75-3.00% The rates on short term will go up but its a matter of when…go for the 3% now and if rates rise significantly the take the penalty and pull out of the 10 yr and go short term…at least your making 3 times the best 1 yr rate in the interim.