BUDGETING AND SAVING
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Ever feel like growing your savings is taking forever? If you’re ready to upgrade from a traditional savings account to one that can help accelerate your savings efforts, you’ve come to the right place. Let's take a closer look at two popular savings options, high-yield savings accounts and CDs. Both accounts offer competitive interest rates and are reliable, low-risk investments.
With both accounts offering similar benefits, it can be tricky to choose between them. We'll cover the differences between high-yield savings accounts and CDs to help you decide what account will best support your goals and match your financial lifestyle.
What is a CD account?
A certificate of deposit (CD) is a type of savings account that offers a competitive interest rate in exchange for leaving your money untouched for a predetermined period. Your initial deposit, known as the principal, will accrue interest throughout the term of your CD.
A CD could be a great option to grow your money if you don’t need to withdraw before the end of the term, usually between six months and a few years. You’ll also want to have your full deposit ready upfront. With a CD account, additional deposits are not usually accepted after the initial one.
What is a high-yield savings account?
A high-yield savings account has the same functionality as a traditional savings account but with the added perk of having a higher interest rate, also referred to as an annual percentage yield (APY). The higher your APY, the more you will see your savings grow. Keep in mind that the APY can change at any time based on the Federal Reserve benchmark interest rate.
What are the main differences between them? Let’s break it down:
Withdrawals
- With most CDs, your savings are locked in for the length of the term. If you need to withdraw funds, penalties may apply.
- With a high-yield savings account, you can make withdrawals without penalties. You can also continue making deposits, unlike with most CD accounts.
Interest Rates
- CDs typically offer higher rates than savings accounts. Your rate is fixed for the length of the CD term.
- High-yield savings accounts also offer better rates than standard savings accounts. Your rate is variable and could change at any time.
How do I know which account is right for me?
It all comes down to choosing what works for your lifestyle. If you plan to continue making deposits or withdrawals with your savings, a high-yield savings account could be a great option to give you plenty of flexibility with your money. CDs are a great option if you already have a chunk of money saved that you won’t need to touch for a while.
If you’re still not sure which account is best for you, compare available interest rates for CD and high-yield savings accounts to find the best offer. Remember, high-yield savings rates can change anytime, but your CD rate is locked in for the length of the term.
Try out our savings calculators and CD calculator to see how much your money can grow depending on the interest rate.
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