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CDs vs. High-Yield Savings Accounts: What’s the Difference?

CDs and high-yield savings accounts can help grow your savings, but they operate differently.

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If you notice things like high prices grocery store Shop and high mortgage rates, you are not alone. Inflation The rise in interest rates to control inflation has also cut the budgets of many, causing some financial distress. But the good news is that these market changes are also driving up interest rates for savers.

If you want to earn your cash while taking relatively little risk, there are two popular options High yield savings And Certificate of Deposit (CD) account

If you’re interested in pursuing a high-yield savings account, start by exploring your rates to see how much more you can earn.

What is Certificate of Deposit (CD)?

A traditional CD is an account where you deposit money for a fixed period of time in exchange for a fixed interest rate.

For example, if you put $1,000 into a 12-month CD that pays 4.5% annual percentage yield (APY), you’ll have $1,045 at the end of those 12 months.

Although you can usually withdraw your money before the due date if necessary, this usually comes with a penalty, such as losing several months worth of interest that you would have otherwise earned.

You can buy traditional CDs through banks or credit unions. You can also buy brokered CDOs through a brokerage firm, but these may have different rules and protections, so you’ll want to carefully analyze your options before buying. Explore your CD options online now.

What is a high yield savings account?

A High Yield Savings Account A savings account, usually with a bank or credit union, that pays a relatively high interest rate.

Although different people may have different opinions on what high yield is High Yield Savings Account Pay above the national average APY for savings accounts.

Effectively, a high-yield savings account works like any other savings account. The difference can be branding, and sometimes the types of institutions that offer high-yield savings are somewhat unconventional, such as being online only versus having physical branches. Explore your high-yield savings options online now

The difference between CDs and high-yield savings accounts

There are several differences between CDs and high-yield savings accounts, such as:


CDs are intended to be used for a specific period of time. A 5-year CD, for example, is meant to be held for five years. At the end of the term, CDs often have an automatic rollover option to a new CD, unless the depositor wants to withdraw their money at that time.

In contrast, a high-yield savings account is open-ended. You can usually keep your money in the account for as long or as long as you want. You can add and remove money over time.

Savings accounts used to have limits on the maximum number of transfers and withdrawals per statement period, but the Federal Reserve lifted that rule. In 2020. However, your financial institution may still have its own rules that you’ll want to clarify.

Minimum deposit

CDs have higher minimum deposits than high-yield savings accounts. Often that’s from about $500-1,000 Open a CD, but it varies depending on the financial institution and possibly the rate offered. Some CDs have no minimums, but you might have better luck finding a no-minimum high-yield savings account, or at least a much lower minimum balance, like $100.

interest rate

CD interest rate, especially for periods of 1-year or longer, tend to be higher than high-yield savings interest rates. However, traditional CDs typically have fixed interest rates, whereas high-yield savings accounts may have fluctuating rates.

So, if you open both a CD and a high-yield savings account at the same time, it’s possible that the CD will start out at a higher rate, but down the road, the savings account may have a higher rate depending on the broader market environment.

This is one reason many people create what’s known as a CD ladder, where you divide your money between CDs of different maturities. That way, as something matures, you can take advantage of higher interest rates by putting that money into new CDs. Yet if rates fall, at least you have some long-term CDs from that previous rate environment.

Similarities Between CDs and High-Yield Savings Accounts

Although there are several significant differences between CDs and high-yield savings accounts, at their core, they are both intended to be relatively safe stores for cash. Unlike investments that can go up or down in value, both traditional CDs and high-yield savings accounts are generally meant to protect your principal and then earn extra from interest.

Also, traditional CDs and high-yield savings accounts are both insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), although you’ll want to confirm with the specific institution you’re getting the product from.

How can you determine which option is best?

Choosing between a CD and a high-yield savings account depends on factors such as your current finances, goals and risk tolerance.
If you want more liquidity, for example, you’ll likely choose a high-yield savings account. If you want the certainty that comes with a fixed interest rate that often starts higher than high-yield savings interest rates, you can choose CDs.

Also, look for any fees these products may incur. While many CDs and high-yield savings accounts don’t have fees, you don’t want to guess and get hit with unexpected charges.

And remember that it doesn’t have to be an either/or decision. Some people open a high-yield savings account for flexibility and put some money in CDs. You can put some money in investments like stocks to further diversify your wealth.

To find what works for you, consider exploring interest rates and terms from different providers. You may also want to talk to a financial advisor or other trusted professional who can help you decide what works best for you. Explore your high-yield savings options online now to see if these accounts work for you

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