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CDs vs. Savings Accounts: Which Is Better for You?

Depending on your financial situation, CDs and savings accounts are great options to maximize your savings. Learn about the different types of accounts and get tips to decide which is best for you.

Portrait of Lora Shinn

Lora Shinn
Mar 20, 2023 in: Budgeting

If you're thinking about where to stash your cash and how to make it grow, you might consider whether a savings account or certificate of deposit (CD) is best for you. Both offer the chance to earn interest, but the two account types have distinct benefits of their own. Add up the differences and similarities to find out which is right for your savings goals.

Comparing CDs vs. Savings Accounts

Banks and credit unions offer savings accounts, which are accounts specifically for saving money versus spending. You can also find certificates of deposit, or CDs, at most financial institutions. CDs are designed to save money for a particular amount of time. At credit unions, CDs may be called "share certificates."

The biggest difference between CDs vs. savings accounts is that CDs can pay more interest, but you can't access your funds without penalty.

Savings Accounts

What Is a Savings Account?

A savings account is an account you can deposit money into, typically linked to your checking account. It's easy to transfer funds between savings and checking accounts or to put money in or take money out of the savings account. You typically earn more interest on your money in a savings account than in a checking account.

Types of Savings Accounts

Savings accounts typically come in one of three types: Traditional (or regular), high-yield and money market accounts. All three types typically allow you to transfer funds in and out and earn interest at your financial institution's rate for that account type. These rates can change. Traditional savings accounts don't require you to keep money in them for a specific length of time (term), but they might have minimum initial deposit and balance requirements. More on interest rates and balance requirements later. 

Three Common Types of Savings Accounts:

  • Traditional or regular savings accounts: You earn interest on the amount you're saving at the financial institution's current rate. You can't write checks or make debit purchases, but you can deposit and withdraw funds and transfer money to your checking account.
  • High-yield savings account: These have a higher interest rate than traditional savings accounts. They also often require you to maintain a high balance before you can get the high rates, and it may take longer to access your funds or transfer funds out of these accounts than a regular savings account. Your primary financial institution might not offer high-yield accounts, so consider if having your checking and savings accounts linked is a priority for you. If you're considering a high-yield account from a digital-only financial institution, be aware that you might not have access to the same range of product and service options that you'd get with a traditional credit union or bank.
  • Money market accounts: Typically offer higher interest rates than savings accounts but with greater volatility because they typically fluctuate with the market. Typically, you can write checks from a money market account, but you'll likely be limited in the number of transactions you can make.

How Do Savings Accounts Work?

A savings account often pays interest and works much like a checking account: You can transfer money in and out, add money or withdraw it. At some financial institutions, savings accounts offer higher interest rates depending on the amount of money saved. You may need to keep a minimum balance in the account, such as $25 or $50.

Are Savings Accounts Safe?

The money in your savings account or CD is typically insured by the FDIC (if a bank) or the NCUA (if a credit union) for up to $250,000 combined, per individual account holder, for all deposit accounts held with that financial institution. This means you can have both a CD and a traditional savings account at one credit union — perhaps one is $50,000, and the other is $200,000, for a total of $250,000 insured. Any amount above this at that institution may not be insured. Talk to your financial institution about what the insurance limits are.

An image of three dollar bills in a stack on the left, with a green arrow to the right. Inside the arrow is a "%" and above the arrow is a yellow dollar sign.
With a savings account, you can transfer money, make deposits and withdraw funds. Interest helps your money grow.

How Much Interest Do Savings Accounts Earn?

The estimated interest you earn on a savings account over one year is expressed as Annual Percentage Yield or APY. Each bank or credit union sets its rates, but savings accounts typically pay lower APY than most CDs. You may pay taxes on any interest earned.

Savings Account Withdrawal Rules

You can open a savings account at most banks and credit unions or check your annual percentage yield and balances with online banking tools. You can easily add money at any time, even with direct deposit. However, some financial institutions may have additional limits or restrictions on your access to savings; be sure to ask before opening the account and read the documentation.

You can move or withdraw money from a savings account using your ATM card or online tools.

Who Is a Savings Account Best For?

If you need your savings soon for a specific goal. For example, if you're looking for a house and require a down payment in the next three months, you might keep your savings in an interest-bearing account.

If you're building your emergency fund. Your emergency fund should be available and accessible at any time — for the basement that starts leaking, a surprise medical bill or a car repair.

If you're working toward good financial habits. A savings account eases transfers between checking and savings if you're still working to strengthen your personal finance muscle. However, in some cases, an add-to CD may serve the same purpose. More on add-to CDs later.

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A savings account is a great option if you're saving for a specific goal, building an emergency fund or working to build good financial habits.  

How To Choose a Savings Account

If you need a safe place for your savings that you might take out at any time, look for a savings account that doesn't charge a monthly fee or require a high minimum deposit. Those seeking higher rates might compare options between various high-yield savings accounts (HYSA) or money market accounts. Both types may offer higher returns than a standard savings account.

Make sure you review the account disclosures to understand the account's APY and fees or ask a representative to explain the pros and cons of the different types.

Certificates of Deposit

What Is a CD?

A CD is another way to save money that usually has higher interest rates but less flexibility than a savings account. There are exceptions and special types of CDs, but typically you open a CD with a specific amount of money and don't add to or withdraw funds until the CD's term is over. You usually receive a higher interest rate than you'd find with a savings account, and your money earns interest at that rate for the whole term. You can choose from a range of term lengths offered by your financial institution. Short-term CDs often start at three months, although some financial institutions offer shorter terms. Longer-term CDs can be 60 months or more. You can estimate your CD's worth at maturity with our BECU CD calculator.

Types of CDs

A variety of CD types exist, depending on the institution.

Four Types of CDs:

  • Fixed-rate CDs: A fixed percentage of interest for a fixed term. This is the most common type of CD available, also called a traditional CD.
  • Bump-up or bump CDs: You can "bump" the rate up once over the term. In a rising interest rate environment, the ability to do so can help you feel more confident — you won't miss out on a higher rate next year.
  • Add-to CDs: Usually, you can't add more money to a CD like you can with a savings account. With an add-to CD, you can deposit more money into your CD account using automatic transfers, earn interest, and open with a low initial amount.
  • Other types of CDs: There are many CD types, including CDs for your individual retirement accounts and no-penalty CDs that don't charge a fee for taking your money out early.

How Do CDs Work?

With a CD, you agree to a term (or time period) that you'll leave the money in the account. As the money sits in the CD account, it earns interest. At the end of the term, or maturity, you can withdraw your initial deposit plus any interest earned. Or, at the term's end, you can do a CD rollover, which renews the CD — typically at whatever rate the credit union is now offering.

Like a savings account, banks and credit unions could require your CD to have a minimum balance, such as $25, $500 or $1,000. Some institutions don't have a minimum balance requirement. Some may offer higher rates for larger balances.

Are CDs Safe?

Both a CD and a savings account are safe ways to save money, and your CD is protected by the same FDIC/NCUA rules for savings accounts. However, CDs and savings share a common risk — if inflation continues rising, it may outpace your earned interest. If you put $1,000 into your CD at 3% interest, but inflation is at 5%, by year's end you'll have earned around $30, and have $1,030 in your account. But the value of $1,000 now does not go very far, and applying an adjustment for inflation, your money is worth $981. In addition, you may need to pay taxes on the $30 you earned.

Do CDs Have Higher Interest Rates?

In general, you'll likely earn the most interest on specific or promotional terms of CDs, and the longer the term, the higher the interest earned. Some CD terms do typically provide higher interest rates than savings accounts.

An image of the word "Example" in the top center. Below it are the words "$1,000 CD." Below this are two arrows pointing in opposite directions. A red arrow on the left and pointing to the left says "5% Inflation" and a green arrow on the right and pointing to the right says "3% Interest." In the middle of the arrows is a small circle that says "vs" inside it. Below the arrows are the words "$981 Net One Year."
If inflation continues rising, it may outpace your earned interest. (Inflation and interest rates listed here are intended to help illustrate this example only. They are not guaranteed or based on current rates.)

CD Withdrawal Penalties and Rules

Pulling money from a CD may be more challenging than withdrawing money from a savings account. You could pay early withdrawal penalties if you take your initial deposit out before the term ends (also called the maturity date). The amount depends upon the financial institution's rules but usually works out to several months' interest you've already earned and could include part of your original deposit.

For example, if you have a CD term of 15 months and take the money out at 12 months, you could pay a penalty of 90 days' interest.

An image of a women wearing a black sweater and holding a yellow purse inserting her debit card into a red ATM. To the left of the ATM is a callout bubble with the words "CD NO" on top in red and "SAVINGS YES" on the bottom in blue.
A deciding factor for choosing between CDs and savings accounts may be access to your funds. With savings accounts, you can withdraw money anytime. You typically can't withdraw funds from a CD until the end of the term.

Who Is a CD Best For?

If you know you don't need immediate access to the money and you have clear savings goals. For example, if you are saving for a house, but you know you won't be ready to buy one for three years, a 36-month CD might be a good idea as a higher interest-earning savings vehicle.

If you're a saver who wants dependability and who is patient. A CD's interest rate will stay the same throughout the term, even if rates start going downward again. But you'll need to be a patient saver, waiting until the maturity date to access your cash and avoiding early withdrawals.

How To Choose a CD

Compare interest rates and APY of different terms to find the best return on your savings. Also, review the CD's rules and flexibility: It may be worth a slightly lower interest rate to have the ability to bump up a rate or add-to a CD. Make sure you understand any early withdrawal penalties and add-to requirements and restrictions.

Is It Better To Put Money in a CD or Savings?

Here are four fictional examples of how you might use different kinds of CDs or a savings account if you have $10,000. Keep in mind the rates stated as Annual Percentage Yield (APY) in this table are used as examples only.

Table: Examples of Fixed-Rate CDs, Bump-Up CDs, Add-To CDs and Savings Accounts
Fixed-Rate CDs Bump-Up CDs Add-To CDs Savings Accounts
Fictional Example*:

You put $10,000 into a 12-month CD at 3% APY*** in January. In January of next year, you decide not to renew the CD, and you withdraw $10,304 which is the amount of your initial deposit plus interest compounding monthly. 

You put $10,000 into a 12-month CD at 3% APY in January. Rates continue to climb, and you bump up your rate to the September rate at 3.5% interest in September for the last four months. Your total principal plus interest, compounding monthly, is $10,321 at the end of 12 months.

You put $10,000 into a CD, then add $25/month for the next year at 3% APY interest, compounding monthly. In one year, you have $10,608.

You put $10,000 into a savings account in January. You don't deposit or withdraw any money even though you could any time. The interest rate is 0.50% APY. By the end of the year, you have $10,050.

Which Is Right for You?

Consider the pros and cons of CDs vs. savings accounts before choosing how you're going to save.

Table: Pros and Cons of CDs and Savings Accounts
Pros Cons
  • Can't withdraw money whenever you wish.
  • Potential early withdrawal penalty.
  • Rules and types can be confusing.
Savings Accounts
  • Lower rate of interest.
  • Interest rate changes; can go up or down without warning.
  • Potential fees, depending on bank or credit union.

Is It Better To Have a CD or a Savings Account?

Whether a CD or savings account is better depends on your financial situation and savings goals. If you want to watch your money grow and earn more competitive yields as it does so, and you don't need immediate access to your cash, a CD account could be a good choice. Unlike CDs, a savings account provides immediate access to funds — which may tempt you away from your savings goals.

What Is the Drawback to CDs vs. Savings Accounts?

The primary drawback of a CD is that you can't easily access your money in the account. For example, you can't usually "break" a CD and access the funds on the same day. With a savings account, you can access the money whenever you wish. With some CD types, you may also be unable to add to your account balance or bump up your rate.

Is It Worth Putting Money in a CD Right Now?

In general, saving money is always a good idea if you can, and a CD is one of the safest ways to do it. Interest rates since 2022 have been rising, so CD rates are now much higher than in 2021. The potential risks of putting money in a CD right now include inflation outpacing your CD's interest rate.

Second, if interest rates continue rising, you might "lock up" your funds at an interest rate lower than will be offered in three or six months. Bump-up CDs can help relieve that worry, as you can raise your rate later in the year if you wish. You can also consider a CD ladder to take advantage of returns.

Increasing Your Savings Account and CD Interest Rates

You may earn more in overall returns or interest if:

  • You're a credit union member or bank customer where you get the account.
  • You avoid monthly fees, such as maintenance fees.
  • You deposit a larger amount of money.
  • You choose a specific term for a CD — some credit unions offer special rates for 12- or 15-month terms, for example.

For example, BECU's Member Advantage savings accounts earn a higher interest rate than a regular savings account and refund out-of-network ATM fees for qualifying members.** BECU doesn't charge monthly maintenance fees. Likewise, BECU members can earn more on CDs with Member Advantage, depositing large amounts into the CD or choosing specific term lengths.

An image of a pink piggy bank in the middle with four yellow circles in an arch above it. From left to right the circles have the following inside them: a man wearing a red shirt, a piece of paper that says "NO MONTHLY FEES," a stack of dollar bills and a calendar.
Both CDs and savings accounts accrue interest for you. However, some CDs can usually provide higher interest rates than savings accounts.

Final Verdict

You might decide to keep money in just one account or both types. For example, keep several months of living expenses in an emergency savings or money market account while saving for a new car in an add-to CD. At financial institutions like BECU, you can even designate different savings accounts or "envelopes" for various purposes.

* Where examples are used, the products, rates and returns are not guaranteed and are for educational purposes only. The information and examples are not advice and may not reflect the rates, products, or services currently available from BECU. BECU does not offer or guarantee products or rates in this article.

** One Member Advantage savings and Member Advantage checking account per primary member. Learn more about Member Advantage by visiting Refund of out-of-network ATM fees charged by the other financial institution on ATM withdrawals from a Member Advantage savings, Member Advantage checking or Member Advantage money market account. Refund will be made to the Member Advantage account of withdrawal. Account must be open and still considered Member Advantage at time of refund. Refunds processed daily and may take up to three days due to cut-off and posting times. If you share your Member Advantage account with another person, your maximum fee reimbursement will still be $3.

***Rates stated as Annual Percentage Yield (APY) and are used as examples only. Rates subject to change, fees may reduce earnings. The APY is based on an assumption that interest will remain in the account until maturity. Early withdrawal penalties may apply.

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Portrait of Lora Shinn

Lora Shinn

Lora specializes in personal finance topics for BECU, and has also written for regional and national publications such as The Balance, U.S. News and World Report, LendingTree, GoodRx, CNN Money, Bankrate, The Seattle Times, Redbook and Assurance IQ.