CDs vs. savings accounts: Which is right for you?

Savings accounts are more flexible, but CDs can give higher return

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With the cost of living rising, developing a smart savings plan is critical. Higher interest rates can work in your favor with both certificates of deposit (CDs) and savings accounts, but it’s important to choose the one that’s best for your needs.

A savings account is a good option if you need to easily access your savings, such as to fund an emergency expense. A CD is better if you won’t need regular or quick access to the funds. You’ll likely earn a higher return with a CD, but you’ll pay a penalty if you withdraw the funds early.

Key insights

  • CDs and savings accounts allow you to save money safely and earn interest in return.
  • Savings accounts typically have lower interest rates than CDs, but you can access your money whenever you need it, making them ideal for an emergency fund.
  • You’ll earn a higher rate of return on a CD, but you’ll pay a penalty to access your funds before the CD’s term ends.

What is a certificate of deposit (CD)?

A CD is a type of bank account that earns a fixed interest rate for a set term. CD terms can be as short as one month or as long as five years or more. You usually need to make a single deposit of at least $500 to $1,000 to open a CD, and you can’t add money later. In exchange for the fixed term, you’ll usually earn a higher rate than with a savings account.

CD rates vary based on term length, the bank you use and other factors. Comparison shop to find the best one for you.

Because the bank is counting on you to keep the funds in your CD, you’ll likely incur an early withdrawal fee if you need to take the money out before the term ends. These fees may be as low as $25 and as high as 12 months of interest or more. The longer the term remaining on your CD, the larger the fee you may need to pay.

The rate you’ll earn on your CD investment varies based on the bank you choose and what’s happening to interest rates and the overall economy. In the current rate environment, you might get a rate of 0.15% or less on a one-month CD or up to 5% or more on a one-year CD. It pays to shop around for the best rate, as CDs are a competitive product most banks offer.

CDs are a good savings tool if you want to earn higher interest rates to achieve your near- to medium-term savings goals and you don’t plan to access the funds before the term is up. If you want access to some of the funds, you can ensure liquidity by using a CD ladder to set up multiple CDs with staggered terms (e.g., five CDs maturing one month apart).

CD laddering also allows you to capitalize on rising interest rates. You can lock your funds into a new term at current market rates as each CD matures. You may end up earning more if you’re able to get higher fixed rates each time a CD matures.

Pros and cons of CDs

One of the greatest pros of a CD is that you’ll earn a predictable rate of interest over a fixed period of time. Plus, you’ll usually earn a higher rate than on a savings account, and you can choose a variety of terms ranging from one month to five or more years. However, the trade-offs are you’ll usually pay a penalty to access your funds early, you may need to meet a minimum deposit requirement and you might be locked into a lower-than-market rate.

The pros and cons of CDs are:


  • Earnings are predictable, since the rate is fixed for the CD’s term.
  • You’ll generally earn a higher interest rate with CDs than with other savings accounts.
  • You can choose from various terms, ranging from as short as a month to five years or more.


  • You may incur a penalty if you access your funds before the CD’s term is up.
  • Many banks require you to deposit at least $500 to $1,000 to open a CD.
  • You may be locked in at a lower-than-market interest rate in a rising-rate environment.

What is a savings account?

A savings account is a type of bank account that earns a variable interest rate on the funds you deposit. You can access the money in a savings account anytime. In many cases, there are no minimum deposit requirements to open a savings account, which makes them accessible to more people.

Although the specific number varies by bank, a common limit is six monthly withdrawals or transfers from a savings account per month.

Jill Allman, senior vice president at PNC Bank, noted that savings accounts “can be started with relatively low balances that can be added to over time with an automated savings plan but … there may be limitations to the number of withdrawals that can be made during a particular period.”

Compared with CDs, Allman said: “Savings accounts are better options for consumers who may need regular access to their money or plan to gradually add funds over a period of time. They're excellent for emergency funds and may pay a competitive rate of interest during higher rate cycles that compare well to short-term CDs.”

Additionally, many banks now offer high-yield savings accounts, which work similarly to regular savings accounts but have a higher interest rate (as much as 10 to 15 times higher in many cases). To benefit from the higher rate, you may need a higher opening balance (e.g., $500) or incur fees if your balance falls below a certain amount.

Pros and cons of savings accounts

The biggest pros of savings accounts are you can add more money to the account and access your funds whenever you want. Plus, the interest rate you earn might increase in a rising-rate environment. However, you’ll usually earn a lower annual percentage yield (APY) than on a CD, you might incur fees if your balance falls below a minimum, and earnings are unpredictable because of rate changes.

The pros and cons of savings accounts are:


  • You can add more money to the account whenever you want.
  • You can withdraw your funds as needed without penalty.
  • The interest rate on your account will increase in a rising-rate environment.


  • You’ll usually get a lower interest rate with a savings account than with a CD.
  • You may incur fees if your balance falls below a certain minimum amount.
  • Your interest earnings are unpredictable, since the interest rate changes over time.

How to choose between a CD and a savings account

Some factors you should consider when choosing between a CD and a savings account are:

  • Your risk tolerance: Savings accounts and CDs are equally safe. If you’re worried about locking in a rate during a rising-rate environment, you may consider opting for a savings account. Conversely, a fixed-rate CD may be better if you want predictable interest earnings.
  • How often you’ll need to access the funds: Once you’ve placed your funds in a CD, you can’t access them without penalty until the term ends. A savings account may be a better choice if you need to access the funds regularly.
  • The interest rate you want to earn: CDs generally have higher interest rates than traditional savings accounts. That said, if you want a higher interest rate and need to access your savings on demand, you can consider a high-yield savings account, which could have a rate nearly as high as a CD.
  • Your short- and medium-term savings goals: Break your financial goals into short- and medium-term goals. A savings account is better for short-term goals like building and maintaining an emergency fund. A CD is better for medium-term goals, like saving to buy a house.

No matter which type of account you choose, consider the APY — how much you’ll earn on the account each year — and any fees you might incur.


How do you open a savings account?

After comparing rates and choosing a bank, you can open a savings account by filling out an application online or at a local branch and selecting the type of savings account you want (e.g., traditional, high-yield). As soon as your account is open, you’ll deposit the amount you want to save.

How do you open a CD?

You can open a CD at almost any bank. After comparing rates and selecting a bank, you’ll complete an account application and choose the CD term you want (e.g., six months). Once your account is open, you’ll deposit the funds electronically, by depositing cash or by check.

How are interest rates determined?

Interest rates are determined by market forces and vary based on what’s happening in the economy. You can generally expect interest rates to increase when market forces want the economy to slow down or in an effort to decrease inflation. In contrast, interest rates generally decrease in an effort to spur spending and speed up the economy.

What kind of savings account earns the most money?

A high-yield savings account earns the most money. You’ll generally earn an interest rate as much as 10 to 15 times higher on a high-yield savings account than on a traditional savings account. However, you may need to make a higher initial deposit or keep a certain amount of money in your account to avoid fees.

Bottom line

Before opening a CD or savings account, consider your savings goals. A savings account is ideal for storing your emergency funds, since you can easily access your money whenever you need it.

Once you open a CD, you often can’t access the funds before the term ends, unless you pay an early withdrawal penalty. Not only does this make accessing your funds harder, but it can also eat up your interest earnings, defeating the purpose of having a CD.

While both accounts are safe places to store your money, savings accounts are better if you need routine access to your money, such as for an emergency fund. CDs are better for medium-term savings goals, such as saving to buy a house.

Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Federal Reserve, " Monetary Policy Principles and Practice ." Accessed Feb. 2, 2023.
  2. Federal Deposit Insurance Corporation), " National Rates and Rate Caps ." Accessed Feb. 1, 2023.
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