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

The benefits of CDs and high-yield savings accounts are specific to the individual.

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in a period of time Inflation And Unpredictability of the market Many Americans are looking for any edge they can get. It would be great if they could just protect the money they have, but if they could earn interest on that amount, it would be even better.

Fortunately, there are two products on the market that can currently do both: protect and grow your money with interest (and compound interest if the money is unchanged).

A Certificate of Deposit Account, also known as a CD, locks money deposited into your account for a predetermined period of time. You can’t touch it without penalty during that time, 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 accompanies most traditional savings accounts).

High Yield Savings Account Also will pay you more with interest rates in the 3% – 4% range and you will be able to access the account like any other account. The higher the rate the Fed hikes, the more you can make.

But which one is better? CD or high yield savings account? This is what we will discuss below.

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

When the CD is good

Everyone’s personal financial situation is different so make sure you take a close look at the benefits of each of these options before signing on the dotted line. That said, here it is Three times when a CD might be good for you:

  • When you want a fixed rate: A CD will honor the interest rate you received at sign-up regardless of market activity over the life of the account. So if rates drop during that time you’ll be locked into a higher rate. Conversely, if the rate goes up, you can’t take advantage (unless you open another CD at a higher rate).
  • When you want to protect your money: CDs lock your money for the duration of your term, making it unavailable for withdrawals or deposits during that time. Because of this you can rest assured that your money is safe (and growing, thanks to those interest rates).
  • When you can afford it: Because the CD prohibits you from accessing the funds in the account during that time, you need to make sure you can part with that money for that time. But because CD terms vary significantly (it can be months or years), many people can hold their money – and earn interest – for a short period of time without problem.

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

When high yield savings account is good

If the terms and benefits of a CD aren’t convenient for you, consider switching to a high-yield savings account instead. Here are three times when it might be a good option:

  • When you want a higher rate: Interest rates on CDs and High Yield Savings Account Currently competitive. But if you think the rates are likely to rise more than they currently are and want to get higher rates then go ahead with a high-yield savings account. These accounts, unlike CDs, will be responsive to the rate environment, meaning you could earn more money in the future than you would if you locked yourself into the interest rate presented by a CD when you opened it.
  • When you want to use the account: CDs, as mentioned, are “set it and forget it” type accounts. You won’t be able to access the money there until it expires (unless you’re willing to pay a fee). But many high-yield savings accounts work just like your regular savings account. You may even be able to get a debit card that you can use as 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 give you protection, security and interest but they won’t offer flexibility. If you’re someone who wants the freedom to use their account as they please or let it sit for a period of time before resuming activity, a high-yield is the better route for you. You get more banking freedom with a high-yield savings account versus a certificate of deposit.

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

Bottom line

Both CDs and high-yield savings accounts are particularly beneficial to open in our current high-interest rate environment. Neither is better than the other because 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 protection that CDs offer while others may prefer the flexibility (and potentially higher interest rates) that high-yield accounts can provide. Do your homework on both options and understand what you’re trying to achieve before signing on the dotted line. Or split the difference and deposit amount between the two to see which you ultimately like better.

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