CD vs. Savings Account: Which Is Better?

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Putting your money away in a savings account or a CD is obviously a better strategy than hiding it under your mattress. With either of these accounts, you’ll earn a bit of interest. Your money will be safely tucked away and insured by the FDIC. But what’s the difference between a savings account and a CD? Read on to learn about these account types and what you should consider when deciding between these two options. 

See: Apple Bank for Savings Review: Top Rates for CDs and Savings

What Is a Savings Account?

Many people are familiar with savings accounts because their parents opened one for them when they were children. A savings account is simply an account at a bank that earns interest. You can’t write checks against one, but some savings accounts do let you dip into your funds by using an ATM card. You can also transfer the money to your checking account.

Savings account interest rates are currently very low. The national average rate sits at an annual percentage yield of 0.07% with a cap of 0.82%, according to the Federal Deposit Insurance Corp. To put that in perspective, it means if you open a savings account with a deposit of $1,000, then by the end of the year you’ll earn a total of $0.70 in interest on the money, assuming a 0.07% interest rate.

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There are also high-yield savings accounts, which offer higher interest rates. High-yield savings accounts can often be found at online banks. Online banks are more likely to offer higher rates because they have lower overhead than brick-and-mortar banks.

Here’s a look at how rates at five online banks compare:

Bank Savings APY
Ally Bank 2.10%
Axos Bank 0.61%
Barclays 2.25%
Discover 2.00%
Marcus by Goldman Sachs 2.15%

High-yield savings accounts used to impose a limit of six convenient transactions per month (either withdrawals or transfers) known as Regulation D. However, the pandemic caused many people to need quick access to their savings accounts, and the Federal Reserve lifted this rule. As of now, it has no intention of reinstituting it. Keep in mind that your bank can still choose to hold you to that six-transaction limit.

Opening either a high-yield savings account or a traditional savings account is easy. Shop around for the best rates, and keep an eye on fees as well.

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 of time. CD terms typically range from three months to five years. The longer the term, the higher the interest rate will be.

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Here are some examples of CD rates you’ll find at online banks:

Bank 12-Month CD APY 5-Year CD APY
Ally Bank 3.00% 3.15%
Barclays 3.05% 3.50%
Discover 2.70% 3.25%
Marcus by Goldman Sachs 3.00% 3.30%

Always shop around for the best rates on CDsUnlike 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, but you may have financial difficulties if an unexpected expense arises.

Keep in mind that if you agree to a three-year CD at a locked-in rate of 0.80% APY and next year’s interest rates double, you’ll still earn only the interest rate you agreed to when you opened the account. Another thing to be aware of is the maturity date of a CD. When the term on a CD is up, you have three options:

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If you miss the maturity date entirely, the bank will automatically roll the money over into another CD for the same length of time. Sometimes people buy CDs specifically to save for certain 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. Finally, if CD rates have risen and you want to take advantage, you can simply open a new CD at a new interest rate.

CD Ladder Strategy

You can use what’s called a CD ladder strategy by investing in several CDs of different term lengths. When one CD matures, you can roll it over into a higher interest-paying CD, or you can withdraw the money. This way, you’ll be able to take advantage of longer-term CDs with higher rates and still have access to your cash.

Why Are Interest Rates So Low?

Rates on CDs and savings accounts have been very low during the past 10 years. Rates are tied to the Federal Reserve. The Federal Reserve usually slashes interest rates in response to economic downturns, such as that caused by the coronavirus pandemic. The reason for this is that lower interest rates encourage people to borrow more money, thus stimulating the economy. This is great if you are buying a house, but not if you are trying to save money. Interest rates are expected to remain low until at least 2023.

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What To Consider When Deciding Between a Savings Account and a CD

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 much in interest, but you’ll be able to access your cash whenever you want or need it. If they require a minimum deposit, it is usually rather low. Sometimes, you can open an account with as little as $1. CDs often require a minimum deposit of $500 or more.


Consider opening both accounts at the same time. Open a savings account for emergencies, and put some money away in a high-yield CD. 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 investing decision.

Andrew Lisa contributed to the reporting for this article.

Rates are subject to change; unless otherwise noted, rates are updated periodically. All other data is accurate as of April 12, 2021.