Deciding how to save your earnings can be tricky when choosing between the savings account and CD account because your personal situation dictates the best choice. Of course, you don’t have to sit twiddling your thumbs forever because you just can’t decide. If you’re not sure which route to take, take a look at some benefits of taking either route.
There are a number of reasons that choosing to save your earnings in a savings account can work for you. Let’s look at what they are:
- Easy access to funds. One major benefit of utilizing a savings account vs. a CD account to save your earnings is being given access to your money any time. While you’re trying to save and earn interest, you know emergencies can pop up. If you think you might need access during these times, this might be a better method of saving for you.
- You earn interest. If you open a high-yield savings account, you can earn compounding interest (which means you earn interest on top of interest and principal). This is a great way to build up the amount you’re saving.
Now here are some potential benefits to opening a CD account when trying to save your earnings:
- No access to your funds. The purpose of the CD account is to allow the bank to borrow your funds for a specific duration without you having access to it. For some, this is problematic. However, if you really want to save your earnings and never touch them, this is a better route to take.
- Higher interest rate. Since you’re not given access to your funds, you are rewarded with a higher interest rate than for the savings account. This, again, is a great option for those who know for a fact that they will not need to touch the money in their account.
It’s hard to say which is better between the savings account and CD account without analyzing a personal situation. However, in a nutshell, if want access to your money and don’t mind a lower interest rate, the former is better. And if you don’t mind not having access and prefer a higher interest rate of return, the latter is the best for you.