CDs vs. High Yield Savings Accounts: Which is Better?

For a time of inflation And market unpredictability many Americans seek every advantage they can get. If they can just protect the money they already have, that would be great, but if they could earn interest on that amount, that would be even better.

Fortunately, there are two products on the market right now that can do both: protect and grow your money with interest (and compound interest if the money stays intact).

A certificate of deposit account, also known as a CD, locks the money you deposit into an account for a predetermined period of time. You won’t be able to touch it during this period without penalty, but you’ll be rewarded with a significantly higher interest rate (think 3.5% to 4.5% or more, compared to the 0.33% that comes with the most traditional savings accounts).

High Yield Savings Accounts will also offer you more money via interest rates in the range of 3% to 4% and you will be able to access the account as you would most other accounts. The higher the Fed rate hikes, the more you will earn.

But which is the best? CDs or high-yield savings accounts? This is what we will talk about below.

You can start exploring your high yield savings options online now to see how much you could earn.

When CDs are better

Everyone’s personal financial situation is different, so be sure to carefully consider the benefits of each of these options before signing on the dotted line. That said, here three times when a CD may be better for you:

• When you want a fixed rate: A CD will honor the interest rate you received at sign-up, regardless of market activity during the life of the account. So if rates go down during this time, you’ll be locked into the higher rate. Conversely, if the rates increase you will not be able to benefit from it (unless you open another CD at the higher rate).
• When you want to protect your money: CDs will lock your money for the duration of your term, making it unavailable for withdrawals or deposits during that time. For this reason, you can rest assured that your money is protected (and growing, thanks to this interest rate).
• When you can afford it: Since CDs prohibit you from accessing funds in the account during this time, you need to make sure that you can afford to part with this money during this time. But because CD durations vary widely (it can take months or years), many people can afford to deposit their money — and earn interest — for a short time without issue.

Explore your online CD options now to see how much you could earn or use the table below to get started.

When High Yield Savings Accounts Are Better

If the terms and benefits of a CD don’t sound good to you, consider a high-yield savings account instead. Here are three cases where this may be the best option:

• When you want a higher rate: Interest rates on CDs and high yield savings accounts are currently competitive. But if you think rates could go up even more than they are now and you want a higher rate, upgrade to a high-yield savings account. These accounts, unlike CDs, will be sensitive to the rate environment, meaning you could make more money in the future than if you locked yourself in with the interest rate presented by a CD at the time of its opening.
• When you want to use the account: CDs, as mentioned, are a “set and forget” type of account. You won’t be able to access the money until the end of the term (unless you’re willing to pay a fee). But many high-yield savings accounts work the same way as your regular savings account. You can even get a debit card that you can use however you see fit. So if you want the freedom to use the money in the account, a high yield is a better option for you than a CD.
• When you want flexibility: CDs can offer you protection, security and interest, but they don’t offer flexibility. If you’re someone who wants the freedom to use their account whenever they want or let it sit for a while before getting back to business, High Yield is the best fit for you. You will have more banking freedom with a high yield savings account than with a certificate of deposit.

Check your savings options in the table below to see what interest rate you qualify for!

The bottom line

CDs and high-yield savings accounts are particularly advantageous to open in our current high interest rate environment. Neither is better than the other as the benefits of both are specific to the individual and their financial needs and goals. Some people may prefer the locked-in interest rate and security that a CD offers while others may prefer the flexibility (and potentially higher interest rate) that a high yield account can offer. Do your homework on both options and understand what you’re trying to accomplish before you sign on the dotted line. Or split the difference and deposit the amounts into both to see which you ultimately prefer.