CD vs High Yield Savings Account

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Points of Interest

CDs and high-yield savings accounts both offer a way for people to use their money to make an additional return, but there are some major differences between the two — including liquidity and guarantee of returns.

If you’ve got some spare money sitting in your bank account or cash in your pocket, you may be looking for ways to invest and earn a return on your money. You have plenty of investment options to choose from, but there are two popular options that offer a no-risk way to earn a return on your money: CDs and high-yield savings accounts. When it comes to deciding CD vs. savings, both may offer solid, guaranteed returns, but there are also a few major differences between the two, meaning one or the other may or may not be the right investment type for you.

What is a high-yield savings account?

A high-yield savings account is an account you open with a bank or credit union that is similar to a traditional savings account — the difference is that it returns a higher percentage yield. Signing up for a high-yield savings account is simple and can be done at most banks or credit unions online or in person.

With a high-yield savings account, you’re paid interest on the money you deposit into your account. High-yield accounts can vary on rates, but generally have over APYs over 0.50% to 0.60% or more. High-yield savings accounts are a good option for people who want to earn interest on their money but aren’t sure if or when they’ll need to withdraw it.

Money market accounts are similar to high-yield savings accounts in that MMAs offer high interest rates — but you can access your money easily like you can with a checking account. If you’re thinking money market vs. CD or money market vs high-yield savings account, make sure to take the time to look at the liquidity differences between the options before making a decision.

What you need to know about high-yield savings accounts

  • Interest rates are generally higher at online banks
  • Minimum deposits often required to receive high-yield rates
  • Rates are not guaranteed and can change at any point
  • If your account is FDIC or NCUA-insured, your money is safe
  • Limited to six transactions per month

What is a certificate of deposit?

Certificates of deposit, or CDs, are investment accounts offer a no-risk, guaranteed return on your money. While these accounts are similar to savings accounts, there are a few differences. Unlike a savings account, your money is invested in a CD for a fixed term and you’ll earn a guaranteed rate that cannot change. You cannot touch the funds in your CD during that period, though, or you will incur a penalty.

CDs are opened through financial institutions and you’ll have several term lengths to choose from, which offers flexibility. The shortest term CDs are one month and can be as long as a decade or more.

What you need to know about CDs

  • Rate is guaranteed the length of your investment
  • No fees unless you withdraw early
  • Better rates offered by online banks
  • Automatically roll into a new CD at term if you don’t withdraw
  • Rates vary by bank or credit union

CDs vs. high-yield savings accounts

Pros/ConsCDsHigh-Yield Savings Accounts
ProsGuaranteed rate
Protected from market fluctuations
Accessible funds
Continued rate shopping
ConsLimited liquidity
Rates won’t increase
Rates may drop
Vulnerable to market fluctuations

The final word

Both CDs and high-yield savings accounts help you earn money on your investment via interest and neither are risky. Whether one or the other is the best fit for you will depend on liquidity and what you expect rates to do in the future. If you need time to decide, you may find it best to start with a savings account and move to a CD later if you decide that is the best fit.

Jason Lee

Jason Lee is a U.S.-based freelance writer with a passion for writing about dating, banking, tech, personal growth, food and personal finance. As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skillsets with the rest of the world.