The longer the period, the greater the chance interest rates or inflation will rise during the term, making you regret that your money is tied up in an older bond or CD with a low yield. Short-term rates are heavily influenced by the Federal Reserve. Although the Fed has been cutting short-term rates this year, these rates are still not as low as they have been at other times. Meanwhile, long-term rates, which are determined by supply and demand as investors buy and sell bonds, have fallen dramatically as investors look at the weakening economy and bet on what rates will do in the future. In other words, you won't earn much more in exchange for tying your money up for five years.
Many CDs have early-withdrawal penalties equal to six months' interest.
Odds that rates fall. If prevailing rates were to fall over the next five years, you would be glad you had locked in to five years of earnings at more than 5 percent. But the odds that rates will go lower and stay that way are slim. Rates on five-year bonds have been lower than today's level for only about five of the last 120 months. Risk of rising rates.