$40,000 CD vs. $40,000 High-Yield Savings Account: 3 Things Savers Should Consider Now
Both options offer risk-free methods to grow your savings. Learn how much you can earn with each, how they differ and which one suits you best.
Are you looking for a safer place to park some of your cash amid market volatility? If so, CDs and high-yield savings accounts are smart options to consider.
Both can offer predictable returns while keeping your money protected by FDIC insurance, generally up to $250,000 per depositor, per insured bank and ownership category. Best of all, each also offers APYs that currently outpace inflation.
With these things in mind, here's how much you can earn by saving $40,000 with each account. I also cover the three things you should consider before setting up an account and which option works best for different risk profiles.
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How much can you earn with a $40,000 deposit?
Let's start with why so many savers turn to these two options: They generate a healthy return effortlessly. If you were to open a high-yield savings account with one of our top choices, Newtek Bank, you would earn a 4.20% APY.
Now, that's sure to rise in the near future if the Fed starts raising rates. In the interim, you'll still outpace inflation. And if you store $40,000 in this account, here's how much you can earn in interest with the 4.20% APY:
- 1 year: $1,715.68
- 2 years: $3,504.95
- 3 years: $5,370.96
- 4 years: $7,317.01
- 5 years: $9,346.53
If the 4.20% APY remained unchanged and you left your interest in the account to compound, you could earn more than $9,000 in interest over five years. However, high-yield savings rates are variable, so your actual earnings will depend on how the account's APY changes over time.
If Newtek Bank isn't the right choice for you, use this Bankrate tool to find savings options that align with your needs:
Now, let's turn our attention to CDs. The best CD rates are usually short-term; think six months to a year. You can also earn a robust return on long-term CDs.
Sallie Mae offers a five-year CD with a 4.35% APY. In general, a CD with an APY of at least 4.00% may be worth considering if you're looking for returns that can help your savings keep pace with inflation.
If you put $40,000 in a five-year CD with Sallie Mae, you could earn $9,490.55 in interest for doing nothing. It isn't as much as you would earn with a high-yield savings account on the surface, but CDs also have another perk we'll discuss in a minute.
If you don't want to lock in a long-term CD, you can shop for the best options using this Bankrate tool.
Before signing up for either account, here are three things smart savers should know.
1. APYs will change
The Federal Reserve is in a wait-and-see mode due to persistent inflation. While there has been momentum for the Fed to hike rates, the bond market tightening could have a similar impact with higher borrowing costs. The Fed's policy also affects each of these accounts differently.
With a CD, you can lock in your rate now and maintain it through the term. CDs feature fixed interest rates, so what you see is what you get. Meanwhile, high-yield savings accounts feature variable interest rates that can change based on the Fed or your bank's policy.
APYs are not the only thing to consider when choosing between these accounts. Another option concerns how comfortable you are with not having access to your cash.
2. Do you need liquidity?
Typically, my savings strategy involves keeping my emergency fund in a high-yield savings account. That way, if an emergency arises, I can transfer funds and have quick access to my money.
CDs don't share that same luxury. The term you lock in is what the bank expects you to fulfill. I use CDs for short-term savings goals because they can keep you on track since you can't withdraw your money without a penalty.
If you haven't used CDs before, here's what I recommend: Start by tucking some money away in a short-term one, think three to six months. Doing so allows you to maximize returns while rates are still high, and you'll have quick access back to your cash.
Another option is to consider a no-penalty CD. As its name implies, you can withdraw money once you reach the vesting period. Depending on the bank, it is usually one week to one month after you open it.
3. How long are your savings goals?
Another key consideration is how long you want to store your money in one of these accounts. With high-yield savings accounts, you're free to make changes anytime you need to, whether it's one month or 10 years into the future.
That's a nice perk to have, as you can pivot to other strategies fast. The same doesn't apply to CDs.
Unless you choose a no-penalty CD, you're locked into your term. The good news is you don't have to worry about your rates changing, but you're also sacrificing access to that money until your term expires.
Say you lock in a five-year CD, but in year three you want to move more of your money to an investment account. With a CD, you can do so, but it requires months of interest earned in penalty fees, losing you money in the process.
Therefore, pay close attention to your savings goals and ensure the account you choose meets them.
What's the best savings strategy for me?
It depends on your needs and savings goals. This table breaks down how each account differs:
Factor |
High-Yield Savings |
CD |
|---|---|---|
Flexibility |
✅ High |
❌ Low |
Higher guaranteed rate |
❌ No, because rates are variable |
✅ Yes (fixed rates) |
Early access |
✅ Yes |
❌ Penalty applies |
Good for long-term |
❌ Not ideal due to fluctuating rates |
✅ Yes, if you won’t need the cash |
High-yield savings accounts are for short-term savers who want to build an emergency fund or need quick access to their cash. CDs work best for established savers looking to park a chunk of their money and forget about it until the term expires.
In either case, both of these accounts can help you reach your savings goals. The key is to pay attention to your savings needs and choose the right account to match them. Doing so helps you outpace inflation while earning a robust return.
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