By Peter McDougall- BankingMyWay.com

If you plan on retiring, changing careers or starting a family, you may need to be more flexible with your money. Locking up money in a five-year CD isn't a step in the right direction, especially when you won't earn much more in the way of interest.

Long-term CDs normally have much better rates. You're paid a premium for promising not to touch your money for such a long time. The national average for interest rates on 60-month CDs is currently 2.78%, whereas the average rate on three-month CDs is only 1.18%, according to rates published by BankingMyWay.com. But many lenders are offering much less of a premium these days.

Take, for instance, rates from the New York metropolitan area. Northfield Bank offers a seven-month CD at 3.25% and a 60-month CD at just 3.5%. Northwest Savings Bank offers a 12-month CD at 2.25% and a 60-month CD at 3%. And rates vary widely among lenders -- the 12-month CD offered by Nara Bank is much higher than the national average, at 3.75%.

Why tie up your money for an extra four years if it only provides an additional 0.25 percentage point in interest? For example, if you invest $5,000 in a 60-month CD at 3.5%, you'd have $5,938 at the end of five years. If, instead, you put that $5,000 in a 12-month CD at 3.25% and keep reinvesting the principal and any interest into another 12-month CD at the same rate, you'd have $5,867 at the end of five years. That's a difference of just $71.

And if you access that $5,000 before the end of five years, you’ll get hit with early-withdrawal penalties. Those penalties can cost you six months worth of interest -- around $88 at 3.5%. Risking an $88 penalty for $71 of extra interest doesn't make sense.

For more rate offers in your area, go to bankingmyway.com and enter your ZIP code.

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