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Three years or five years is more appropriate: don't just look at the interest rate, look at the time of money first

Many savers struggle with how to choose between a three-year period and a five-year period. In essence, it is not to compare which number is higher, but to compare how long the funds are not used, whether they will be withdrawn in advance in the future, and whether they should lock in interest rates in advance in low interest rate cycles.

Three-year and five-year periods are often compared directly, but what really influences decision-making is often not the extra interest rate, but your grasp of future cash flow. The term is wrongly chosen, and even higher interest rates may be meaningless when withdrawn in advance.

Why not just focus on higher five-year rates?

The five-year period seems to be more likely to lock in long-term earnings, but if there is a high probability that this money will be used in the next 2-3 years, then a longer period may not be more cost-effective. If early withdrawal occurs, the expected advantage of high interest rates may shrink rapidly.

For many households, the three-year period is not only shorter, but it makes it easier to strike a balance between earnings and certainty.

What are the best scenarios for a three-year period?

If you may be involved in renovations, education, car changes, or down payments over the next few years, but the timing is not fully locked in, a three-year period is usually a more secure compromise.

It delivers higher yields than one-year and short-term options without locking in liquidity for as long as five-year periods.

What are the best scenarios for a five-year period?

If the money has been clearly used for long-term preservation, such as pension reserves, family funds that will not be used for many years in the future, then the five-year period is more suitable for hedging interest rate downturns and reinvestment risks.

But even if you choose a five-year period, it is not recommended that all funds are locked up at once, retaining a part of the liquidity layer or doing term stratification will be more in line with real-life uncertainty.

Before you start, confirm these points

  • First, determine whether the money is likely to be used in the next 3 years.
  • When worrying about early withdrawal, the combination of three-year period and mobile layer is preferred.
  • The money that is not used for a long time is considered to be locked up for five years.
  • Before comparing, look at the execution rate, not just the number on the surface.

Try the numbers yourself:

Want to validate the extra interest discussed in the guide? Open the calculator below, switch to compound mode, or test a 3-year term for a quick comparison.

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View 3- and 5-year rates Open Time Deposit Calculator Read the Low Rate Cycle Lock-in Guide

Related Questions

Which is better for education grants?

The three-year period is more suitable for the early accumulation of education funds. For example, the nine years from primary school to junior high school can be divided into three three years, and the expiration time of each period is stamped before a specific education expenditure. Five years is regularly suitable for large education expenditures at a defined point in time, such as high school and university after three years.

Which is better for a pension reserve?

Pensions are more secure at regular intervals of five years, as pensions are usually long-term idle funds. But if the configuration needs to be adjusted midway, the three-year periodicity is more flexible. The ideal solution is stratification: short-term spending in the near term, three years in the medium term, and five years in the long term.

How much is the early withdrawal loss?

Losses depend on changes in interest rates. If the interest rate has fallen when withdrawing in advance, the loss is small; if the interest rate rises, the loss is obvious. The opportunity cost of a five-year fixed term is usually higher, so be sure to confirm that the funds will not be used in advance before the deadline is selected.