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A certificate of deposit (CD) offers a fixed high interest rate for a set amount of time (typically three months to five years). If you withdraw your money before the maturity date, you may have to pay a penalty.

A savings account is the most basic account for saving available through a bank or credit union. This type of account allows you to easily deposit money while earning a small amount of interest on your balance. You can withdraw money from your savings account whenever you want (in some cases with a debit card). However, there may be limits on the number of transactions you're allowed to make.

Both CDs and savings accounts are insured up to $250,000. CDs are federally insured, and savings accounts can be insured by the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration.

Traditional savings accounts have variable interest rates, which means they can go up or down over time based on market conditions. CDs generally offer fixed interest rates that do not change during the account's term. When you open the CD, the rate depends on market conditions at the time you open the CD, duration, and the amount of your deposit.

Overall, the biggest advantage of CDs is the higher interest rate. So it's good to know what's happening with interest rates before opening a CD. When rates are falling, you could benefit from locking your money in a CD with a higher rate.

When to consider a savings account:

  • you need money to be accessible, like an emergency fund
  • you're saving for a smaller or relatively short-term goal
  • you're primarily putting money aside rather than trying to grow it
  • you don't mind variable interest rates
  • you have a small opening balance

When to consider a CD account:

  • you can afford to let the money sit for a while
  • you're saving for a bigger or longer-term goal
  • you're trying to grow your money a little
  • you'd prefer to lock in your interest rate with a fixed rate
  • you've got a larger opening balance.

Of course, you don't have to choose between one or another and open both accounts. For example, you could use a savings account to build up a rainy-day fund, and a CD account to save for a down payment on a home.

tags : Certificate of deposit

Disclaimer: This editorial content is not provided or commissioned by the banks or credit card issuer(s). Opinions expressed here are the author's alone, not those of the banks or credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the banks or credit card issuer(s). Reasonable efforts are made to present accurate info, however all info is presented without warranty. Consult with the issuing bank of the card or account for terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are accurate as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.