CD vs. High-Yield Savings: Which Is Better?

Certificates of deposit (CDs) and high-yield savings accounts are both solid savings options. But while they share the same goal of helping you grow your savings, they work a little differently. Let’s compare the two to determine which is the better fit for your savings needs.

What is a high-yield savings account?

A savings account is a bank account that allows you to stash your extra money securely while also earning interest. A high-yield savings account is just a regular savings account that pays higher than average APYs (Annual Percentage Yields).

Interest rates on high-yield savings accounts are higher than rates on regular savings accounts. For example, some high-yield savings accounts currently pay 5.00% APY or higher, while the national average rate on regular savings is currently 0.42%.⁽¹⁾

Your money will be safe in both types of savings accounts as they are federally insured through the FDIC (Federal Deposit Insurance Corporation) up to $250,000 per depositor when opened with a bank.

Savings accounts allow you to have easy access to your money. But, know that some banks may limit the number of withdrawals you can make. This limit is usually six withdrawals per statement cycle — typically one month.

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What is a certificate of deposit?

A certificate of deposit (CD) is a type of savings account where you deposit your money for a fixed term. Think of it like a locked savings account you cannot access until that term is over. Over that term, you also earn a fixed interest rate.

CDs often pay higher rates than savings accounts, with rates sometimes being 3x higher than the national average — no matter where the federal rates fall. Some of the best CD rates for common term periods are:

3 months	4.00%–5.10%
6 months	4.60%–5.10%
12 months	4.60%–5.10%
60 months	3.80%–4.09%

CDs also have deposit insurance through the FDIC. You can’t easily access your money in a CD, though, and you may have to pay an early withdrawal penalty or forfeit a portion of the interest if you choose to withdraw.

The good news is that some CDs may allow for partial withdrawals. There are also no-penalty CDs that typically allow for one full withdrawal without any penalties.

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CD vs. high-yield savings: What’s the difference?

Both CDs and high-yield savings accounts can earn you higher interest than other savings tools, but they aren’t exactly the same.

CDs are locked deposit accounts, meaning you also lock in the rate when you open the account. The rates on high-yield savings accounts are variable, meaning the rates are subject to change as the market changes.

High-yield savings accounts offer more flexibility than CDs, allowing you to access your funds at any time. On the flip side, you can’t easily access your money that is locked in a CD without paying penalties.

When a savings account makes sense

For some situations, opening a savings account is your best saving option. You may consider a savings when:

• You need quick access to your money for emergencies or frequent withdrawals.
• Interest rates are expected to rise in the current rate climate.
• You need somewhere to place your emergency fund.
• Your savings goals are short-term, like a vacation or large purchase planned.
• You want to add to your savings regularly.

When a CD makes sense

Depending on the scenario, opening a CD may also make the most sense. Consider a CD when:

• You don’t need immediate access to your money.
• You want locked-in, guaranteed high APYs.
• You want a low-risk investment and a fixed return.
• You need help avoiding the temptation of spending.
• You have a lump sum you will not need over the term.

Alternatives to CDs and savings accounts.

While CDs and savings accounts can generate solid returns, they may not be ideal for everyone. If you are seeking alternative savings or investment options, consider the following:

• Money market accounts. MMAs are higher-yield deposit accounts where you have checkwriting privileges (or a debit card).
• Cash management accounts. An account that combines features of checking, savings, and investment accounts. Cash management accounts usually earn interest and offer checkwriting and/or a debit card.
• Stocks. Shares of ownership in a certain company that can grow and pay you a part of its earnings.
• Bonds. Investor-made loans to another company where the investor earns interest in return.
• Mutual Funds. A collection of investments usually includes a diversified portfolio of various assets.
• Treasury Bonds. Long-term, low-risk loans issued by the government that pay a fixed interest rate.

Bottom line.

Both CDs and high-yield savings accounts are great options for earning money on your savings.

If you need more flexibility and access to your money, a high-yield savings account may be best. If you don’t need your money immediately, try a CD. Additionally, if you want to lock in your rate, a CD may benefit you over the variable rates of high-yield savings accounts.

However, not all CDs and high-yield savings are created equal. Make sure to take the time to explore the best high-yield savings accounts and best CDs.