Study Reveals Savings Accounts Are a Better Option Than CDs in 42% of States

cd rates by state

Are you constantly chasing better interest rates on your savings? Could you be unnecessarily locking your money into restrictive terms as a result? This latest study by Go Banking Rates says there’s a 42 percent chance you are.

Depositors are dismayed by the increasingly low interest rates offered by banks, and the need for secure savings options that will also provide decent returns is one that continues to grow. However, certificates of deposit (CDs) — long regarded as the high-yield alternative to traditional savings accounts — no longer provide that sure bet in economic conditions that have essentially leveled the playing field.

6-Month CD Rates Are Higher, But Not by Enough

Go Banking Rates collected the average savings account rates and average 6-month CD rates offered in each state, as well as Washington DC, then compared the difference in return between both deposit products. While CD interest rates were higher than savings account rates in almost every instance, the interest rate gap between the two products may not always be wide enough to warrant locking in funds for a 6-month commitment.

The difference between savings and average CD rates is just 0.10% or less in 42 percent of states. In Delaware, average savings account rates are actually higher than that of 6-month CD rates. In fact, it’s not until depositors reach two-year CD terms that they stand to earn around one percentage point higher in interest than traditional savings account offers.

Most consumers will find that the liquidity offered by a savings account is well worth the very slightly reduced interest rate in these states, and should opt for a savings account over a short-term CD if immediate access to funds is a concern.

However, in states such as West Virginia, Minnesota and Maine, where average 6-month CD rates are closer to 0.2% higher than average savings account rates, it may be worth it to agree to limited accessibility in order to give savings that extra boost.

Average Savings and 6-Month CD Rates by State

Below you can view a state-by-state comparison of average savings rates versus average CD rates for a six-month term.

cd interest rates

Below is a chart showing the states offering the largest additional return for 6-month CD rates over savings accounts to the smallest.

(click for a larger version)
average cd rates

CD Options for Higher Interest Rates

For depositors who prioritize greater earnings over account liquidity, higher CD interest rates can be found with longer-term accounts. By opting for a one- or two-year CD, for instance, you can generally earn rates above 1% and sometimes in the 2% range. Note, however, that withdrawing funds before account maturity will cancel out any interest earned, so it’s important for depositors to carefully weight their options before opening a CD.

How Average Interest Rates Are Calculated

Go Banking Rates is a source for the most comprehensive local interest rate information; while many interest rate aggregators simply survey local branches belonging to national banks and credit unions, we manually collect interest rate information from individual community banks and local credit unions in every U.S. state, in addition to national and online banks.

Savings account and CD interest rate averages are calculated based on the information in our rates database, which populates our Rates Table. Currently, there are more than 4,000 financial institutions in our Rates Table. Rates are based on a $10,000 deposit and are as of July 15, 2012.