CDs vs. High-Yield Savings Accounts: Which Is Better?

When you’re looking for a place to put your money, two of the most attractive options are a certificate of deposit or a high-yield savings account. While these accounts work differently, both generally enable you to earn an attractive interest rate, and both might be fee-free.

Before depositing your money in a CD or high-yield savings account, determine which type of account better suits your needs. A key difference between the two: A high-yield savings account may provide easier access to your money than a CD.

What Is a CD?

A CD is a type of savings account available from banks, credit unions and investment firms. Generally, you lock up your money for a certain period of time — such as six months or three years — in exchange for a fixed interest rate. If you withdraw money from a CD before the term ends, you may lose some of the interest you’ve earned.

As of April 2024, a number of banks and credit unions were offering CDs with annual percentage yields above 5%.

How Does a CD Work?

When you open a CD, you typically agree not to touch the money until the CD “matures.” A CD’s term may stretch anywhere from one month to five years, for example. Once you set up a CD, you usually can’t add money beyond the one-time initial deposit.

Some CDs require a minimum opening deposit (such as $1,000 or $2,500) and a minimum balance (such as $500 or $1,000).

If you take money out of your account before the maturity date, you face the loss of some of the interest that you earned. However, some financial institutions offer no-penalty CDs, enabling you to withdraw money before the maturity date without paying a penalty.

Types of CDs include:

Traditional CD. A traditional CD is a standard account that generally lets you earn a fixed interest rate over a set period of time.

Jumbo CD. A jumbo CD requires a larger opening deposit (such as $100,000) than a traditional CD and earns interest at a higher rate.

No-penalty CD. As opposed to a traditional CD, a no-penalty CD lets you make a withdrawal before the CD term ends without being hit with a penalty.

Step-up CD and bump-up CD. Step-up and bump-up CDs let you increase the interest rate before the CD term ends. A step-up CD phases in several rate hikes, while a bump-up CD includes a one-time rate hike.

Add-on CD. An add-on CD enables you to make deposits after the opening deposit.

Brokered CD. Brokered CDs are offered by investment brokerage firms.

Pros and Cons of CDs

Pros of CDs include:

— Fixed interest rate.

— Potentially higher interest rate than high-yield savings account.

— Variety of CD types.

Cons of CDs include:

— Generally less access to cash than with high-yield savings account.

— Possible penalty for withdrawal before end of CD term.

— Often lower returns than stocks or bonds.

What Is a High-Yield Savings Account?

A high-yield savings account generally pays a higher interest rate than the national average for savings accounts. However, a CD often pays a higher interest rate than a high-yield savings account.

As of April 2024, several banks and credit unions were offering high-yield savings accounts with APYs above 5%.

Because they don’t operate branches — meaning they’ve got lower overhead costs — online banks often pay higher interest rates on high-yield savings accounts than traditional banks.

How Does a High-Yield Savings Account Work?

Unlike a typical CD, a high-yield savings account pays a variable interest rate. Therefore, the rate might rise or fall at any time. Still, the interest rate for a high-yield savings account normally exceeds the interest rate for a traditional savings account.

You generally can access money in a high-yield savings account through an electronic funds transfer, at a bank branch or at an ATM (if you have an ATM card). Savings accounts generally don’t offer debit cards or checks.

Keep in mind that some banks charge fees and require a minimum balance for high-yield savings accounts. Also, the number of withdrawals you can make per month might be capped.

Pros and Cons of High-Yield Savings Accounts

Pros of high-yield savings accounts include:

— Often low or no fees.

— Unlimited number of deposits.

— Few restrictions on withdrawals.

Cons of high-yield savings accounts include:

— Variable rather than fixed interest rate.

— Potentially lower interest rate than CD.

— Typically no debit card.

CDs vs. High-Yield Savings Accounts

The following table compares some of the features of CDs and high-yield savings accounts. Because CDs offer generally higher APYs, they are a better option if you don’t need immediate access to your money. If you might need to make a withdrawal (like in the case of an emergency), then a high-yield savings account is the safer choice.


More from U.S. News

APY vs. Interest Rate: What’s the Difference?

How Many Bank Accounts Should I Have?

5 Benefits of Having a Savings Account

CDs vs. High-Yield Savings Accounts: Which Is Better? originally appeared on

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