Advertiser Disclosure

CD vs. Savings Account: Which Should I Choose?

Savings accounts give you more flexibility to make withdrawals, but CDs often offer a higher interest rate, if you’re willing to leave your money alone for a set time period.
Banking, CDs, Savings Accounts
CD vs. savings account
At NerdWallet, we adhere to strict standards of editorial integrity to help you make decisions with confidence. Some of the products we feature are from our partners. Here’s how we make money.

Which is the better place to park your money, a certificate of deposit or savings account?  Savings accounts typically give you more flexibility to make withdrawals, but CDs often offer you a higher interest rate upfront, if you’re willing to leave your money alone for a set amount of time. Both options offer guaranteed returns, but the best place to deposit your cash generally depends on how long you’re willing to leave it in your account.

Reasons to open a savings account

If you need access to your money in the near future, or you’re not sure if you’ll need it in the short term, a savings account is probably the better option. You’d have more flexibility, because you won’t have to pay a penalty to make a withdrawal.

A savings account is an especially good place to keep your emergency fund, because it offers fast access to your cash if you incur an unexpected expense.  An even better option is to place the funds in a high-yield savings account, a basic savings account that has an above-average rate. Online banks and credit unions tend to offer savings accounts with better returns than national banks.

A savings account is an especially good place to keep your emergency fund, because it offers fast access to your cash.

If you deposit $5,000 into a high-yield savings account that has an annual percentage yield of 1.3% and don’t touch it, the balance would grow by about $65 after a year. It won’t make you rich, but it is extra money.  And if you need to take money out, you can do so quickly, without an early withdrawal penalty.

A high-yield savings account is not guaranteed to maintain the same rate forever. The bank may choose to raise or lower the rate depending on the current environment.  Use NerdWallet’s interest rate calculator to explore how much you could earn with different rates.

» Looking for high-yield accounts? Explore NerdWallet’s best savings offers

Reasons to open a CD

If you are certain you will not need to access your cash for a long period of time — say, a year or more — then a longer-term CD may be the way to go. Some banks and credit unions offer CDs with term lengths that range from a few days to 10 years.  While you may not want to lock up your money for a decade, many CDs with terms of at least 12 months offer rates that are higher than the best savings accounts.

Many CDs offer rates that are higher than the best savings accounts.

Put $5,000 in a CD that earns 2.4% APY for a one-year term, and your balance would increase by more than $120.

To get the best benefit, you’d only want to open an account with money you know you can afford to set aside until the CD matures.  If you were to withdraw the money before the end of the CD term,  you would probably have to pay a penalty by forfeiting a portion of the interest you earned, depending on the bank’s policy.

» Looking for the highest returns? Check out NerdWallet’s best CD rates list

CDs allow you to lock in a rate for the term length, which is great if rates fall. You won’t have to worry about your bank lowering the interest rate it pays on your balance.

The flip side, of course, is that if rates rise in the coming months and years, your rate would be stuck until the term ends. You could even end up earning less than you’d otherwise get with a high-yield savings account.

One way to decrease the low rate risk is to create a CD ladder by opening several CDs with varying term lengths, instead of putting all your money in a single account. As each shorter-term CD matures, you’d move the balance into new CDs with longer terms and higher rates.  This would allow you to take advantage of higher rates while regularly having access to maturing CDs. To learn more about this approach, read the NerdWallet explainer on CD ladders.

How to open an account

The minimum opening balance for a CD is often more than the minimum required to open a savings account, but some banks and credit unions let you open CDs for as little as $1.  Use NerdWallet’s CD tool to find the best CD rates, minimum balance and term lengths in your area from credit unions, online banks, and traditional banking institutions. If a savings account is better for your needs, you can browse NerdWallet’s high-yield savings accounts tool to find accounts with the best rates.

Once you open the best account for your situation, you’ll be able to take the most important step:  Sit back and watch your money grow.