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Saving money is one of the best ways to plan for a rainy day. Even if you can’t put away thousands of dollars per month, you can still give yourself a bit of a financial cushion.
Certificates of deposit (CDs) and savings accounts are some of the most accessible savings options for consumers at all income levels, but there are some important differences you need to know about.
To take the guesswork out of saving money, we’ve done an in-depth CD vs. savings account comparison.
In this guide, you’ll learn:
A certificate of deposit is a type of savings account. Like traditional savings accounts, CDs are insured for up to $250,000 by the Federal Deposit Insurance Corporation or the National Credit Union Administration. The FDIC insures accounts at banks, while the NCUA insures accounts at credit unions.
When you deposit money in a CD, you usually agree to leave it there for a specific amount of time. For example, if you open up a three-month CD, you typically need to leave the funds alone for three months. Otherwise, you’ll have to pay a penalty for the early withdrawal.
The purpose of opening a CD is to earn interest on the amount deposited. This type of savings account is best for consumers who can afford to deposit their money and leave it alone for several months or years. It may not be right for you if you think you’ll need quick access to your savings.
When comparing certificate of deposit vs. savings account features, it’s important to know which type of account you’re reviewing.
Banks and credit unions offer up to eight types of CDs, all of which work a little differently:
CD rates vary based on the term you select. Currently, the national average ranges from 0.22% for a one-month CD to 1.39% for a 60-month CD according to the FDIC. Multiple financial institutions offer high APYs on their CDs, giving you more bang for your buck.
For example, CDs with APYs of 5% or more include:
Rates change regularly, so these APYs may be higher or lower depending on when you attempt to open a CD. Some credit unions also offer accounts with rates of up to 6% on CDs. However, you will need to qualify under the credit union’s requirements to receive these rates.
A savings account is a type of deposit account for money you don’t need right away.
With a savings account, the goal is to accumulate as much as you can without making a withdrawal. For example, if you save $50 per week for one year, you’ll end up with $2,600. You can use that money to pay for a vacation, make home repairs or purchase a more reliable vehicle.
It’s also wise to keep some savings on hand for financial emergencies, such as calling a plumber after a pipe cracked and flooded your kitchen. Depositing money in a savings account is a good idea if you don’t need the money immediately. Otherwise, you may benefit more from a checking account.
Savings accounts are even simpler than CDs. Once you open an account, you deposit money as often as you’d like. For example, if you have $100 left after paying your monthly bills, you can deposit that $100 in your account.
How you deposit your funds depends on which bank you choose. If you use an online-only bank, you may have to transfer money from a checking account into your savings account. If you use a brick-and-mortar bank, you may have additional options, such as filling out a deposit slip and handing cash to a teller.
If you want to withdraw funds, you have to use an ATM card, fill out a withdrawal slip or transfer the funds to a different account. Previously, federal law prohibited banks from allowing customers to make more than six withdrawals per month without a penalty.
However, the Federal Reserve Board lifted the limit early in the COVID-19 pandemic to make funds more accessible to Americans experiencing financial hardships. As a result, you can now make more than six withdrawals per month without incurring a penalty.
Your bank or credit union may offer something called a money market account. This type of account usually comes with a debit card or with check-writing privileges, making your money more accessible.
When comparing a money market account vs. CD account, the most important thing to know is that money market accounts work pretty much the same way as standard savings accounts.
A high-yield savings account, commonly called a HYSA, offers a much higher APY than a traditional savings account. In fact, it’s not unusual to see HYSA rates that are more than 10 times higher than the national average APY.
For example, high-yield savings accounts with APYs of 4% or more include:
If you’re wondering whether to choose a CD or savings account, you need to understand the pros and cons of each savings option.
The table below highlights the advantages and disadvantages of CDs and savings accounts:
| Account type | Pros | Cons |
|---|---|---|
| CD | ✅Higher interest rates than standard savings accounts ✅Insured by the FDIC or the NCUA ✅Fixed interest rate |
❌Penalty for early withdrawals ❌No ability to add funds unless you choose an add-on CD ❌Minimum deposit requirements |
| Savings account | ✅No early withdrawal penalty ✅Ability to make deposits any time you’d like ✅Insured by the FDIC or the NCUA ✅Low minimum deposit requirements at many banks |
❌Variable interest rates ❌Fees charged by some banks ❌Low earning potential on standard accounts |
When comparing a standard or high-yield savings account vs. CD options, it’s helpful to understand the similarities between certificates of deposit and savings accounts.
Let’s take a look:
The main differences between CDs and savings accounts relate to access and earnings.
Here’s what you need to know:
The process of opening a CD is similar to the process of opening a savings account.
Follow these steps to open an account of your choosing:
Look for an account with the highest rates and most favorable terms.
Be prepared to provide your name, contact information and other personal details. Banks and credit unions need this information to comply with federal banking regulations. If you go into a bank branch, make sure you have your driver’s license or another form of government ID with you.
Your financial institution may require a minimum deposit, but it’s possible to open a savings account even if you don’t have cash available.
If you need quick access to your money, a savings account is the best bet, as you can withdraw funds at any time. In contrast, CDs usually come with early withdrawal penalties.
CDs are a better fit for financially stable individuals who can afford to put money aside long enough to avoid the penalty for early withdrawals. A CD may also be right for you if you’re interested in a higher APY.
Here are some tips to help you find the best CD:
To find the best savings account:
If you need to access money with little notice, a savings account is your best bet. A CD is better if you’re in a strong financial position and won’t need to access the money in your account before the CD term ends.
There’s no reason you can’t have both types of accounts. A standard savings account gives you more access to your money, while a CD typically helps you earn more interest. You can pair these accounts to achieve your financial goals faster.
A high-yield savings account is a standard savings account with a higher-than-average interest rate. HYSAs usually work exactly like traditional savings accounts, which means you can withdraw funds as needed. In contrast, a CD requires you to set money aside for a fixed amount of time.
It depends on which type of account you choose. A high-yield savings account comes with a much higher APY than a standard savings account. However, not all financial institutions offer the same rates on their savings products. You can usually get the best rate by shopping around. You may also have more luck with an online bank versus a traditional brick-and-mortar bank.
Leigh Morgan is a seasoned personal finance contributor with over 15 years of experience writing on a diverse range of professional legal and financial topics. She specializes in subjects like navigating the complexities of insurance, savings, zero-based budgeting and emergency fund development.
In the last five years, she’s authored over 300 articles for credit unions, digital banks, and financial professionals. Morgan is also the author of “77 Tips for Preventing Elder Financial Abuse,” a book focused on helping caregivers protect the elderly from financial scams.
In addition to her writing skills, she brings real-world financial acumen thanks to her previous experience managing rental properties as part of a $34 million real estate portfolio.
