CDs and savings accounts were designed with the same purpose in mind — to help you save money. They both offer guaranteed returns and earn you some interest, but savings accounts give you access to your money while the CDs lock it away until a set date.
What’s the difference between a CD vs. savings account?
Nearly every bank and credit union nationwide offers CDs and savings accounts. They both help you reach your savings goals, but keep these differences in mind:
CDs
Savings accounts
Interest rates
Higher
Lower
ATM access
No
Sometimes
FDIC or NCUA insurance
Yes
Yes
Minimum deposits
Higher
Lower
Ability to access funds
No
Yes
Withdrawal penalty
Yes. You’ll typically pay a penalty fee if you access your funds before maturity.
Yes. You’ll typically pay a penalty fee if you make more than six monthly withdrawals.
Pros and cons of CDs
When you open a CD, you agree to lock your money away until it reaches maturity. This type of account carries the following benefits and disadvantages:
CD pros
High APYs. CDs typically have higher APYs than savings accounts, and the longer the CD term, the higher the interest rate.
No fees. Unlike savings accounts, CDs have no monthly fees or service charges because you can’t touch the funds until the term is up.
Flexible terms. Terms usually range from 12 months to 10 years, but some institutions may offer CDs with shorter or longer terms.
Locked-in rate. Your rate never changes with a CD, so you don’t have to worry about losing money if interest rates drop.
CD cons
Can’t access funds. Your money is locked away in a CD, and you’ll pay an early withdrawal penalty if you need to access it before maturity.
Higher minimum deposits. Minimum deposits vary, but most CDs have higher requirements than savings accounts.
No additional deposits. Once you open a CD, you can’t make any changes to the account, including adding more money.
Pros and cons of savings accounts
A savings account gives you limited monthly access to your money and carries the following benefits and disadvantages:
Savings account pros
More features. Unlike CDs, savings accounts offer ATM cards, mobile banking, direct deposit and more.
Lower minimum balances. Savings accounts have lower minimum balances than CDs.
Easy access. You can deposit or withdraw money into a savings account at any time.
Savings account cons
Lower APYs. You have monthly access to your money, but this benefit comes at the cost of lower APYs.
Monthly fees. Some banks may charge fees to maintain your account every month.
Excess withdrawal penalty. You’ll typically pay a fee if you make more than six withdrawals a month. But some banks are temporarily waiving this fee due to the coronavirus pandemic.
Interest rates fluctuate. Unlike CDs, your interest rate isn’t locked in, so you could earn more or less money if rates change.
CDs vs. savings accounts: Which one should I choose?
While you can earn interest and save money with both a CD and a savings account, the one you should choose depends on how soon you want to access your cash.
Choose a CD if you don’t need the cash until the future and want a higher interest rate.
Choose a savings account if you want to access your cash regularly and add funds whenever you want.
As you shop around for CDs and savings accounts, keep these factors in mind:
1. Interest rates
When you open a CD, you agree to let the bank lock your money away until a certain date. A locked-in agreement means the bank offers you a higher interest rate in return.
If you know you won’t need the money for more than 12 months, a CD is a good option. But if you’re looking for a place to store your emergency fund, a savings account is a better fit.
2. Fees
Savings accounts have higher fees than CDs because you have 24/7 access to your money. But many banks will waive the fee if you meet certain requirements, and others don’t charge a fee at all.
3. Minimum deposits
CDs have higher minimum deposits than savings accounts. Although these vary by financial institution, they could be as low as $0 and as high as $100,000 if you’re looking into a Jumbo CD.
4. Features
CDs are completely off-limits until maturity, so don’t expect many features. At most, you may find one that lets you deposit additional funds or transfer interest payouts to another account.
If you’re looking to withdraw money from an ATM, make direct deposits or manage your account from your phone, a savings account is a better option.
Bottom line
Choose a savings account if you need monthly access to your money or are looking for a place to stash your emergency fund. You’re limited to six monthly transactions, but you can make as many deposits as you’d like and some accounts come with an ATM card.
If you’re certain you won’t need the money for a while and want to earn more, choose a CD. The APY is typically higher than savings accounts, but you’ll pay a hefty fee if you need the money before the term is up.
Once your CD matures, you’ll have three options:
Renew it for the same term.
Roll it into a new CD with a different term.
Transfer it to another bank account.
Your bank will notify you when your CD is about to mature. Once it does, you’ll have a set number of days to make a decision.
Savings accounts are non-transaction accounts because they were created with the purpose of encouraging people to save. Because they are non-transaction accounts, limitations were needed to ensure that financial institutions maintain reserves by either holding the cash in their vault or maintaining it in a Federal Reserve Bank account.
As part of this, the federal government implemented Regulation D which limits the number of transactions account holders can make to six a month. But Regulation D is temporarily suspended, so some providers aren’t imposing a cap on transactions. Check with your provider.
No. Any money you deposit at a bank or credit union is insured up to $250,000. Your money is guaranteed, and you’re never at risk of losing principal or interest.
Cassidy Horton is a writer for Finder, specializing in banking and kids’ debit cards. She’s been featured on Legal Zoom, MSN, and Consolidated Credit and has a Bachelor of Science in Public Relations and a Master of Business Administration from Georgia Southern University. When not writing, you can find her exploring the Pacific Northwest and watching endless reruns of The Office.
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