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Why do longer term CDs pay a higher rate than the short-term CDs?

As a rule, in financial markets, the longer money is being used or provided by a borrower or a lender, respectively, it is going to carry a higher rate of interest. We generally think of banks as lenders, but, obviously, for a bank to lend money it must obtain funds to perform this function. One of a bank’s principal funding mechanisms for this purpose is to “borrow” money from the marketplace in the form of CDs. In order to stabilize its funding, it issues some of its CDs with longer maturity dates, two to five years, and is willing to pay depositors a higher rate to attract these funds.

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