CD or high-yield savings account? 3 factors to help you decide

In an economy still coping with stubborn inflation and elevated interest rates meant to tame it, savers need to be particularly careful with where they invest and store their money. With so many options to choose from, but only a few that offer high returns on their money, many savers keep returning to two primary types: certificates of deposit (CD) and high-yield savings accounts.

Both savings vehicles offer exponentially higher returns than the 0.43% APY that can currently be secured with most regular savings accounts. But each account operates differently and the benefits of using one account for one saver may be a drawback for another. That’s why it’s important to do your research and understand the key factors that differentiate the two.

Start by exploring your CD and savings account options here to see how much more you could be earning. 

CD or high-yield savings account? 3 factors to help you decide

Here are three key factors that can help you determine which account type is best for you.

Accessibility

If you want to earn more interest on your money — but will still need to access it to make withdrawals and deposits — then a high-yield savings account may be the better choice for you. These types of accounts operate just like your regular savings account does, just at a higher-earning APY. Depending on the bank you use, you may even be able to obtain an ATM card for easier use (since many high-yield savings accounts are offered by online banks).

CDs, on the other hand, require savers to leave their money untouched for the duration of the agreed-upon CD term. If account-holders withdraw their money before the term has expired, they risk losing some (or all) of the interest accrued to that point as a penalty. While this reduced accessibility may be desirable for some savers, it could prove to be a detriment for others. So, be sure to understand which is best for you before opening either account.

Check your CD and savings account options here to learn more.

Interest rates

If your top goal is to earn as much interest as possible, then you’ll want to open a CD instead of a high-yield savings account. Because CD terms are locked, banks tend to offer savers higher returns on their money than their high-yield counterparts that can be withdrawn it more easily. 

While rates on high-yield savings accounts are currently about 4.5%, savers could get 5% or more with a CD — and not have to worry about any fees, either. Just be sure to shop around to find the best rate and terms available, as some lenders will provide more favorable accounts than others.

Rate environment

Interest rates are currently higher than they’ve been in years (the benchmark interest rate is at a 22-year high). So you can’t really go wrong by opening either account type (or by splitting your funds between both). 

That said, your expectation for the future rate environment can affect which account type you ultimately choose. That’s because CD interest rates are locked for the CD’s full term, while high-yield savings account rates are variable. 

With this understanding, you may be better served by locking in a CD rate now — if you think rates have peaked and will soon drop again. But, if you think rates will increase again, then a high-yield savings account can better position you to take advantage of those higher rates if and when they increase. It’s really your call to make.

Check today’s CD and savings rates here now.

The bottom line

With rates on both account types higher than they’ve been in recent memory, savers can’t go wrong by opening a CD or high-yield savings account now. To effectively do so, however, you should account for three primary factors: accessibility, interest rates and the overall rate environment. By understanding all three at the time of a prospective account opening, you can most effectively find the right account type for you and your financial goals. 

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