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CDs vs. High-Yield Savings Account

Learn the differences and unique benefits of both CDs and high-yield savings accounts.

If you’re looking for low-risk opportunities to grow your savings, two of the most popular options are high-yield savings accounts and certificates of deposit (CDs). Both offer better returns than traditional savings accounts, but they serve different purposes and come with distinct features that may make one more suitable for your financial goals.

High-Yield Savings Accounts – Flexibility with Competitive Rates

A high-yield savings account is essentially a supercharged version of a regular savings account. These accounts are typically offered by online banks and some traditional institutions and have significantly higher interest rates than standard savings accounts.

  • Benefits:
    • A competitive interest rate is a top benefit of a high-yield savings account. The other benefit is liquidity: You can access your money whenever you need it. That makes these accounts ideal for emergency funds or short-term savings goals.
    • Many high-yield savings accounts, like Forbright’s Growth Savings, also have no minimum balance requirements or minimal monthly fees, and an unlimited number of transfers, making them accessible to most savers. And when you choose a high-yield savings account with a FDIC-insured bank like Forbright, you can have peace of mind that your savings are protected.
  • Caveats:
    • There’s no risk of losing your money with a high-yield savings account, but there is a risk that your interest rate could change. Most high-yield savings accounts have variable interest rates, meaning the rate can change at any time based on market conditions and adjustments to the federal funds rate. While this means your earnings might fluctuate, high-yield savings account rates generally remain competitive compared to traditional savings accounts.

Certificates of Deposit – Competitive Rates for Committed Savers

With a CD, you agree to keep your funds deposited for a specific term, typically ranging from six months to five years or longer. In exchange for this commitment, the bank agrees to pay you a set amount of interest over that term.

  • Benefits:
    • The interest rate for most CDs is fixed for the entire term, providing predictable returns regardless of market fluctuations.
    • Some CDs, such as Forbright’s Growth CD, offer withdrawals of paid interest before the CD reaches maturity. The required minimum balance for the Growth CD is $1,000.
  • Caveats:
    • The trade-off for the predictable returns is reduced liquidity. Withdrawing money before the CD matures typically results in early withdrawal penalties, which can eat into your principal and reduce earnings. To avoid those penalties, it’s best to choose CDs for savings you won’t need to access during the term.

How to Choose Between High-Yield Savings Account and CD

If you’re choosing whether to save with a high-yield savings account or a CD, the right option will depend on your personal financial goals and circumstances.

High-yield savings accounts work best for funds you might need to access quickly, such as:

  • Emergency savings
  • Regular savings you’re actively building
  • Money you want to keep flexible for opportunities

CDs are best for:

  • Known future expenses with specific timelines
  • Savings you can confidently set aside for locked-in returns
  • Creating a CD ladder for periodic access to funds while maintaining higher rates

Many savvy savers use both high-yield savings accounts and CDs to meet their goals. You might keep your emergency fund and short-term savings in a high-yield savings account while placing longer-term savings in CDs to earn predictable rates. This approach provides both liquidity and maximized returns.

Consider maximizing your savings strategy with a Growth CD and a Growth Savings account.

Disclaimer: This article is for general information and education only. It should not be considered
financial or tax advice.

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