CD vs. High-Yield Savings Account: Which is Better?

last updated 9 August 2024

Unsure whether a CD or high-yield savings account is right for you? Both accounts keep your savings safe while accruing interest, but apart from that, they have significant differences. Understanding the differences between the two accounts can help you decide which is appropriate for your particular savings goals. Keep the following aspects in mind when deciding whether a CD or a high-yield savings account is the right choice for you.

When to choose a CD

A certificate of deposit (CD) is a type of savings account that holds a set amount of money for a fixed period, ranging anywhere from 3 months to 5 years. Unlike high-yield savings accounts, you won’t be able to withdraw cash from a CD before its maturity date. Doing so will result in fees that can offset any interest earned (unless you have a no-penalty CD account).

Usually, CD rates are much higher than rates on traditional savings accounts, and in many cases, some of the best CD rates on the market feature an APY of over 5%. Another notable aspect of CDs is that interest rates are locked in when opening a CD account, meaning if rates go down (which they have been), your earnings won't be affected.

Not only should you compare interest rates before opening a CD, but you should also consider any early withdrawal penalties, fees and minimum balance requirements associated with the account, along with the amount of time you’re comfortable locking your cash away. You can compare current CD rates by using our tool below, powered by Bankrate.

Because your money is locked away for a fixed time, CD accounts aren't good options for cash you may need quick access to, like money in an emergency fund. What CD accounts are good for is saving for a particular goal, such as a future purchase, like a new car, or an event, like a wedding. For example, if you know you’re going to buy a car in three years, opening a three-year CD can help build your savings with minimal effort, thanks to compound interest, and also help you resist the temptation to spend your cash.

CDs offer a fixed, predictable rate of return on your savings. Our savings calculator tool can help you determine just how much you’ll earn in compound interest once your CD reaches maturity.

When to choose a high-yield savings account

A high-yield savings account functions in the same way as a traditional savings account, but with one main difference: high-yield savings accounts pay a higher than average APY on deposits. In fact, many of the best high-yield savings accounts offer well over 5%. However, unlike CDs, rates on high-yield savings accounts are not fixed, meaning they can fluctuate with the market.

Below, you can compare current rates for high-yield savings accounts, thanks to our tool in partnership with Bankrate. As with CDs, before opening a high-yield savings account, be sure to review any fees or balance requirements associated with the account.

There’s no term length with a high-yield savings account, as funds in the account are readily accessible. Unlike CDs, you won’t be charged a fee for withdrawing your cash. Because of this, high-yield savings accounts are better suited towards short-term savings goals or to save cash you may need to spend at some point in the near future, like an emergency fund.

Since you won’t be making a singular up-front payment when opening the account, like with a CD, these accounts are useful for individuals looking to gradually save by making regular deposits.

Bottom line on CD vs. high-yield savings accounts

With both CDs and high-yield savings accounts, your cash remains secure while also earning interest. High-yield savings accounts offer more flexibility when it comes to managing your cash. You won't have to wait until the maturity date on the account before withdrawing funds, and you can add to the account whenever you like, unlike with a CD.

However, the downside is that you can't lock in rates when opening a high-yield savings account. With a CD, the APY on the account stays the same from when it's opened until it matures. If rates go down, your earning potential won't be decreased, but it will, however, if your funds are in a high-yield savings account.

And while savings rates are still notably high, they won't remain that way for long. Saving rates initially began rising in March 2022, when the Federal Reserve started hiking interest rates in an attempt to combat high inflation. But as inflation began to slow, the central bank paused its rate-hiking campaign, and savings rates began to creep downward. Rates will fall even further when the Fed eventually cuts interest rates — one quarter-point cut is expected later this year.

Erin pairs personal experience with research and is passionate about sharing personal finance advice with others. Previously, she was a freelancer focusing on the credit card side of finance, but has branched out since then to cover other aspects of personal finance. Erin is well-versed in traditional media with reporting, interviewing and research, as well as using graphic design and video and audio storytelling to share with her readers.