CD vs. Savings Account: What’s the Smarter Investment Right Now?

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Putting your money away in a high-yield savings account or a certificate of deposit, or CD, is a better strategy than hiding it under your mattress. With either of these accounts, you’ll earn a bit of interest, and your money will be safely tucked away and insured by the FDIC.

But what’s the difference between a high-yield savings account and a CD, and what are the benefits of each? To decide what is best for you, it is important to know how they compare.

What Is a Savings Account?

A savings account is simply an account at a bank, credit union or other financial institution that earns interest. You can’t write checks against a savings account, but some savings accounts do let you dip into your funds using an ATM card. You can also transfer the money to your checking account.

Savings account interest rates can fluctuate depending on what type of account you open. The savings accounts with the highest interest rates are called high-yield savings accounts. High-yield savings accounts can often be found at online banks because they have lower overhead costs than brick-and-mortar banks so they can offer higher annual percentage yields.

Here’s a look at how high-yield savings account rates compare at three online banks:

Bank Savings APY
Ally Bank
Barclays Bank
Discover Bank

Opening either a high-yield savings account or a traditional savings account is easy. To maximize your earnings, make sure you shop around for the best rates, check any minimum deposit requirements and keep an eye on fees.

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What Is a CD?

A certificate of deposit is like a savings account in that you’ll earn interest on the money you put into it. Unlike a savings account, a CD requires you to keep your money in the account for a certain period or you could incur early withdrawal penalties. CD terms typically range from six months to five years and require you to maintain a minimum balance. The longer the term, the higher the interest rate will normally be.

Here are some examples of APYs for 5-year CDs at online banks:

Bank 5-Year CD APY
Ally Bank
Barclays Bank
Discover Bank

Always shop around for the best rates on CDs. Unlike savings accounts, you typically can’t dip into your CD when you need quick cash without paying a penalty. That means your money is locked up for the length of the term. This could be a good thing if you’re the type of person who has trouble saving money due to impulsive purchases. Still, you may have financial difficulties if an unexpected expense arises.

If you miss the maturity date entirely, the bank may automatically roll the money over into another CD for the same length of time. Sometimes people buy CDs to save for specific events, such as college or to buy a house. If that’s the case, you can just withdraw the money and use it for its intended purpose.

How Is a CD Different From a High-Yield Savings Account?

The biggest difference between a high-yield savings account vs. CD is that CDs lock your funds into the account for a set period, meaning your funds aren’t very accessible in a CD. Conversely, you can access the money in a high-yield savings account when needed, subject to any withdrawal rules or fees your bank imposes. However, the trade-off is that CDs often have higher interest rates, and they guarantee that rate for the entire term of the deposit.

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CD vs. Savings Account: Pros and Cons

Choosing between a savings account vs. CD boils down to your financial circumstances and objectives. Here are a few pros and cons for both options to help guide your decision.

Type of Account Pros Cons
Certificate of Deposit (CD) -Predictable earnings
-Guaranteed interest rate
-FDIC insured at FDIC-insured banks and credit unions
-Interest rates are generally higher than savings accounts
-Less flexible
-May incur fees for early withdrawals
-Interest rates may be lower than inflation
Savings Account -Money is accessible when you need it
-Some high-yield savings accounts have rates comparable to CDs
-FDIC insured at FDIC-insured banks and credit unions
-Some banks place limitations on savings account withdrawals
-Interest rates can fluctuate over time

CD vs. High-Yield Savings Account: How To Decide

CDs have slightly higher interest rates, but you’ll need to commit to staying the course throughout the length of their term. A savings account doesn’t earn as much in interest, but you can access your cash whenever you want or need it.

If a savings account requires a minimum deposit, it is usually relatively low — sometimes, you can open an account with as little as $25. CDs often require a minimum deposit of $1,000 or more.

You should do plenty of research before committing to any account. Whichever you choose, make sure it’s the best option for your finances.

Final Take

Consider opening both accounts at the same time. Open a savings account for emergencies, and put some money away in a high-yield CD to save up for planned future expenses. The money in the CD will earn interest at a competitive rate and will be there for you when it matures. Either way, saving money for the future is always a smart investment decision.

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Caitlyn Moorhead and Gail Kellner contributed to the reporting for this article.

Rates are subject to change; unless otherwise noted, rates are updated periodically. All other information on accounts is accurate as of Aug. 24, 2023.

Editorial Note: This content is not provided by any entity covered in this article. Any opinions, analyses, reviews, ratings or recommendations expressed in this article are those of the author alone and have not been reviewed, approved or otherwise endorsed by any entity named in this article.

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