But if inflation rises the next year to 2.5% and stays there for the next four years, then the CD in real terms is losing money every year: For example, if a depositor opened a five year CD in year 1 with a yield of 2.05% APY and inflation at 1.5%, then the Value of the certificate of deposit over its five years. If the CD is opened in a low rate environment, and rates and inflation subsequently rise, then inflation will erode the The principle threat to a a five year CD is inflation. If your deposit is over theįDIC limit then you may not receive the uninsured money in case of a bank failure. Like every other CD term, five year CDs from FDIC insured banks are protected up to FDIC limits (generally $250,000 per account holder per bank).
In rising rate environments a five-year CD may not be a good investment. Therefore, the temptation for those looking for yield is to open one, deposit money, and forget about it for five years. The 5-year CD is therefore often the highest offer at your local bank.
While banks may offer six-year, seven-year, or even 10-year CDs, the five-year is the longest of the most commonly offered terms. Five-year CDs are the big kahuna of the CD world.
