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

Deciding between a CD vs. high yield savings account? Here's how to choose.

Set of piggy bank and gold coins.
(Image credit: Getty)

Unsure whether a CD or high yield savings account is right for you? Both accounts keep your savings safe and accrue interest, but they have crucial differences. Therefore, it's important to keep the following aspects in mind when deciding whether a CD or a high yield savings account is the right choice for you and your financial goals.  

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 time period, ranging anywhere from 3-months CDs, to 1-year CDs, to 5-year CDs. Unlike high-yield savings accounts, you won’t be able to withdraw any cash from a CD before its maturity date. Doing so will results 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 earn more than 4%. Further, interest rates are locked-in when opening a CD account, meaning if rates end up going down, your earnings won't be affected.

Below you can compare current CD rates with our new tool in partnership with Bankrate. Before opening a CD, make sure to compare interest rates, early withdrawal penalties and the amount of time you’re willing to lock your cash away. 

Because your money is locked away for a set period of time in a CD, it isn't a good option for cash you might need access to, like an emergency fund. On the other hand, a CD is a good option if you’re saving for a particular goal, such as a future purchase or 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 are also a great option because they 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. However, unlike CDs, the rates on high yield savings accounts are not fixed, meaning the rate you earn can fluctuate with the market. 

Below, you can compare current rates for high-yield savings accounts, thanks to our new tool in partnership with Bankrate. 

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 in the 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 into the account.  

Bottom Line on CD vs. High Yield Savings Account

In both a CD and high-yield savings account, your cash remains secure while earning interest. However, 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. 

Related Content

Erin Bendig
Personal Finance Writer

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.