CDs vs. High-Yield Savings Accounts: Which Is Best for You?
Written by
Caitlyn Moorhead
Edited by
Emily Gadd
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A CD or a high-yield savings account can help you make the most of your savings. These are two popular choices for earning higher returns. Both offer competitive interest rates compared to the national average of traditional savings accounts, but they have distinct features that may align differently with your financial goals. Here’s what you need to know.
What Is a High-Yield Savings Account?
A high-yield savings account typically offers much higher APYs than a standard savings account. Banks offer varying rates for this type of account, so make sure you research how a specific financial institution is going to help your money grow.
Here are some features of high-yield savings accounts to consider:Â
- A good APY for a high-yield savings account could be around 5%.
- To earn the best rates, you often need to maintain a minimum balance.
- A high-yield savings account offers flexibility, making it an ideal choice for quick access to funds. This access can be used for emergencies or short-term goals.
- Online banking can be beneficial for this type of account as online banks have less overhead and can offer better rates.
- There may be an initial deposit minimum to meet to reap the benefits of a higher APY.Â
Pros and Cons of a High-Yield Savings Account
There are some pros and cons to consider with a high-yield savings account, such as:
Pros
- Easy access to your funds
- Withdraw at any time without penalty–unless you’ve exceeded your withdrawal limits
- FDIC insured
Cons
- Interest rates are variable, so they can change at any time
- May have withdrawal limits each month
What Is a Certificate of Deposit?
A CD is a deposit account with a fixed-term period that often offers higher rates than that of a standard savings account. Here are some items to note:
- Term lengths for CDs typically vary between three months to five years.Â
- The interest you earn is only paid once the account has reached maturity as taking funds out before it has matured when the term ends could result in early withdrawal penalties.
- It’s a low-risk investment with a guaranteed return, making it a safe and FDIC-insured savings option.Â
- CDs are a great option for long-term savings goals, but your money will be locked in for the entire term.
- If you have a specific goal in mind, such as saving for a down payment on a house in five years or funding a child’s education in a decade, a CD can offer a stable return and help you stay disciplined with your savings.
Pros and Cons of a CD
Are you leaning more toward a CD? Here are some pros and cons to keep in mind:
Pros
- Fixed interest rate
- Often have higher interest rates than high-yield savings accounts for longer terms
- FDIC insured
Cons
- Early withdrawal penalties
- To avoid penalties, you may choose to leave your money in the account until maturity
- Less flexible than a high-yield savings account
Key Differences Between a High-Yield Savings Account and a CD
Take a look at some of the differences between these two savings options.
| High-Yield Savings Account | CD |
|---|---|
| You can withdraw your money if you need to. | Until the term is over, you can’t withdraw your money without a penalty. |
| Interest rates aren’t locked in and can change at anytime. | Your interest rate is locked in until the end of the term. |
| Best for short to medium term goals or emergency funds. | Best for long-term goals. |
Liquidity
High-yield savings accounts provide a high interest rate while offering flexibility and easy access to your funds. You can deposit and withdraw money from the account as needed, usually through electronic transfers, checks or ATM withdrawals.
CDs, on the other hand, require you to deposit a fixed amount of money for a specific term, which can range from a few months to several years. During this period, your funds are locked, and accessing them before the CD matures may result in early withdrawal penalties.
Interest Rates
High-yield savings accounts offer competitive interest rates that are typically higher than those of traditional savings accounts. While the rates may vary among financial institutions, they often provide a relatively stable return on your savings.
CDs offer fixed interest rates that are generally higher than those of regular savings accounts. With CDs, you know the exact interest rate you will earn for the entire term.
Best for Short-Term vs. Long-Term Savings
High-yield savings accounts are suitable for short- to medium-term savings goals or as an emergency fund.
CDs are more suitable for longer-term savings goals where you can afford to lock in your funds for a specific duration.
Which One Is Better for You?
When choosing a deposit account, whether it is a money market account, CD, checking or savings you need one that fits your daily banking needs.
When To Choose a High-Yield Savings Account
If you are someone who needs consistent access to an account, a high-yield savings account may be a better fit. However, if you have more flexibility and want to grow your money steadily, it could be time to focus on higher yields. You can continue earning interest and access your account when you need.
It’s also a good choice if you need a place to store your funds for a short-term goal, such as travel or an emergency fund.
When To Choose a CD
Since CDs require a deposit for a fixed term, your funds are locked, so there may be early withdrawal penalties. However, having that fixed rate of interest can work in your favor if you don’t need to access your money.
Comparing Returns: High-Yield Savings Account vs. CD Interest Rates
High-yield savings account interest rates fluctuate, but you can still enjoy high rates compared to traditional accounts. Here are some of the best high-yield savings account APYs you can find right now:
| Bank or Financial Institution | APY |
|---|---|
| Jenius Bank | |
| Peak Bank | |
| Capital One | |
| Synchrony Bank | |
| Forbright Bank |
For CDs, you can find high APYs for a variety of term lengths. Here are some of the best APY rates you can find for 1-year CDs:
| Bank or Financial Institution | APY |
|---|---|
| Live Oak Bank | |
| Popular Direct | |
| E*TRADE | |
| Tab Bank | |
| Bread Savings |
With a high-yield savings account, your account receives compounded interest either daily or monthly. That means your money grows over time and stacks its growth.
CDs compound, too, but they have a fixed rate, so the growth is a bit more predictable.
Fees and Risks to Consider
FDIC insurance protects your deposits in case the institution fails, providing a level of security for your savings. While there is still some risk associated with the overall financial stability of the institution, the FDIC coverage adds an extra layer of protection. On the other hand, investing in CDs provides a level of security, particularly if you prioritize the preservation of your capital.
High-yield savings accounts are typically offered by banks and credit unions and are FDIC-insured up to the maximum limit allowed by law.
Similarly, CDs offered by banks and credit unions are also FDIC-insured up to the maximum limit. This insurance safeguards your principal and interest in the event of a bank failure.
If you’re looking for an option that can keep up with inflation, a high-yield savings account may be the better choice since its interest rate adjusts periodically. In contrast, CDs have a fixed rate, which means that if inflation rises, the value of your funds could decline over time.
Which Account Is Right For You?
The bottom line is that choosing between a CD and a high-yield savings account depends on your financial goals, time horizon and liquidity needs. If you prioritize flexibility and accessibility while earning interest rates, a high-yield savings account may be the better option. On the other hand, if you have a specific savings goal and can afford to lock in your funds for a predetermined term, a CD can provide a stable return and potentially higher interest rates.
Consider your short- and long-term financial objectives, the need for immediate access to your savings, and your risk tolerance when deciding between the pros and cons of a CD or a high-yield savings account. It’s also a good idea to compare rates and terms offered by different financial institutions to find the best fit for your specific needs.
High Yield Savings vs. CDs FAQ
Here are some answers to frequently asked questions about a CD vs. a high-yield savings account.- Which has a higher return, a CD or a high-yield savings account?
- This depends on the interest rate and the term length. While CDs tend to have higher rates for longer terms, you might find some exceptions. High-yield savings accounts tend to be more flexible about when you can withdraw your funds, provided you don't exceed any withdrawal limits on your account.
- What is the difference between a CD and a high-yield savings account?
- Though both are deposit accounts that generally offer better rates than a standard savings account, there are some differences. A CD account locks in a fixed rate for a specific term length and you cannot access those funds until the account reaches maturity. High-yield savings accounts have more flexibility, but the variable rates can change.
- Can I lose money in a high-yield savings account or CD?
- No. You generally can't lose money in a high-yield savings account or CD, as long as you're banking with an institution that is covered by FDIC or NCUA insurance. If you withdraw the CD early, there may be early withdrawal penalties charged, which could mean losing out on some of the interest you've earned.
- Is it better to put money in a CD or savings?
- A high-yield savings account may be the better option since you can access your money without paying an early withdrawal penalty. On the other hand, CD accounts often have better rates and are great for short-term savings goals, but you can't access those funds until an account reaches maturity.
Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of March 24, 2025.
*Capital one interest rates accurate as of March 24, 2025. See website for all current rates.
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