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CDs vs Saving Accounts – Which Is Better For You?

Both saving accounts and Certificates of Deposits (CDs) considered as a safe, reliable and solid investment. However - there are a couple of differences between them you have to understand before getting a decision. CDs vs Saving Accounts - which of them is the right investment for you?

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

Table Of Content

Savings are a crucial part of financial stability. Whether you have an emergency fund or investment funds, savings can provide security against unforeseen events or situations. As you can see in this chart using 2019 FED Survey of Consumer Finances data, Americans are saving more. In 2016, American savings had a value of $0.92 trillion. This has steadily increased over time to reach $1.29 trillion in 2019.

How Much Americans Save

What is a Savings Account?

When we talk about a savings account we’re talking about an account with your bank that lets you deposit money and leave it there while earning interest. Just about any bank, credit union or other financial institution that offers these types of accounts is actually insured by the FDIC and they pay you interest.

Of course, those interest rates don’t tend to add up to much, with the average being 0.5 percent or less annually as of the middle of 2021. But you may be able to find some savings accounts that come out a little better.

How Does It Work?

The way it all works is that a savings account is considered a time deposit.

That means that your bank is actually allowed to put restrictions and limitations on your ability to take money out, like requiring notice or charging a penalty.

You generally won’t find banks that do this, but you may find ones that will tell you that your number of transactions on a savings account is limited by the month. On top of that, they may charge you fees based on your balance and they usually aren’t going to give you checks for this account.

You’ll find that transferring funds into your account and even out of your account are quite easy, but the federal government actually imposes restrictions on how many and what kind of withdrawals you can make in a single statement cycle (usually a month). Deposits won’t have any of these restrictions, but you may not be able to make as many telephone or electronic withdrawals as you want, since they’re limited to 6 per statement cycle.

How Are Savings Account Rates Determined?

This depends on the deposits that are being made and how many people are using and valuing the savings account services. If they are extra deposits or more money than usual, they will be able to raise the interest rates.

They also have to compete with bonds and money market accounts, so they will need to offer comparable rates in order to stay in business and make sure they have customers who want to use their savings account services.

When interest rates decline at the Federal Reserve, banks will also have to lower their interest rates for their savings account so they don’t lose money.

What are Certificates of Deposit (CDs)

The following chart from the 2019 FED Survey of Consumer Finances shows the average amount families invest in Certificates of Deposit have grown tremendously between 2001 and 2019. In 2001, the average was just $54.10 and it steadily increased every three years. It peaked in 2010 before steadily increasing again to a high of $101.95 in 2019.

Certificates of Deposit (CDs) holdings per family

When we look at a CD, it’s actually an agreement that you enter into with your bank or a financial institution for a set period of time called a term. You give the bank your money and the bank gives you interest as a result.

For those who aren’t going to need their money for a little bit, this is a great way to earn some extra interest.

How Does It Work?

This is actually another form of a time deposit, but in a slightly more restrictive form than with the savings account. You agree to keep the money agreed in a specific account for a set amount of time (generally 6 months, 18 months, 1 year, etc.)

If you agree to a longer term you’re generally going to get a better interest rate. In fact, you could find a 5 year CD with an interest rate of 3% or higher annually. What you’re generally going to find is that the APR is fixed, meaning that it stays the same for the entire term.

We’ll look at some exceptions to these rules, but in general, your CD will ‘mature’ at the end of the term you agreed and you get to make a decision about how you want to proceed. As you get close to this point the bank is usually going to let you know that you have choices. If you choose not to act you may end up with the money cycled into a new CD of the same term.

The Differences: CDs and Savings Accounts

 CDSavings Account
Term6, 12, 18, 60 months or moreNo Term
Minimum BalanceNone – 5,000 +None
InterestApprox. 3%Approx. 2%
Withdrawal RestrictionsNo withdrawals before maturity3-6 per month
FeesLow to noneLow to none
ProtectionUp to $250,000 per account holderUp to $250,000 per account holder

Bump Up Your Interest

With a CD you’re going to have a better interest rate if you agree to leave your money in the account for a longer period of time. In fact, with a 5 year agreement you could get above 0.25%-0.5% more than the rate you get in your savings account.

When it comes to savings accounts you’re generally not going to get a great rate, but you’ll be able to get some extra money from interest. You just want to make sure you take a look at what’s out there to see if you’re getting the best rates.

Why CDs Interest Rates Are Higher?

Most banks offer higher interest rates on CDs because you have to keep the money in the account before you are allowed to withdraw it. You will agree on the term with the bank when you sign the papers and deposit the money. If you want a higher rate, you should choose the longest term.

Make sure it’s a term you will be okay with not having your money though. If you withdraw the money and face penalty fees before your term is up, you might end up losing much of the interest you earned in the first place.

Limits on Spending and Withdrawal

When it comes to a savings account, the Federal Reserve Board’s Regulation says that banks are only allowed to give you a maximum of 6 withdrawals from either a savings account or a money market account in a month. These actually apply to a number of different types of transactions, but not to withdrawals that are made through an ATM or through an in-person visit.

When you look at CD’s, however, you have to agree to leave the money in the account for the full period of time. There are no withdrawals allowed without incurring a penalty. That penalty amount could vary but it’s usually based on the amount of money you need to take out, the amount that you originally had in and the bank that you made the agreement with.

Minimum Balances

For a savings account, you’re generally not going to have a very high minimum because the goal is to get you to save your money.

For some, you may not even have any minimum at all and you may not have to have a minimum or average daily balance either. On an online saving account – usually, there is no minimum at all.

When it comes to CD’s you may be able to get one for just about any dollar amount as well.

Top Notch Protection

You want your money to be safe, and keeping it stored in your home is definitely not safe. When it comes to using a financial institution, however, you’re going to have a balance of safety and risk.

That financial institution will have a lot of your personal information and they should definitely be careful about keeping it safe. One way they do that is by insuring your savings and your checking accounts under the Federal Deposit Insurance Corporation. They’re insured up to $250,000, completely free of charge and without having to opt in.

How to Decide Between Them?

There are a couple of different things to keep in mind when you’re looking at whether to get a savings account or a CD.

  • Do you need the money soon? If you will then a CD is not the way to go because you’ll have a set period where you can’t get it.
  • What type of investment do you need, long-term or short-term?
  • Are you looking for the highest profit with less flexibility or the lower profit with more flexibility?

If you aren’t going to need your money then a CD is a good way to go. Instead of the no-interest checking account, you might otherwise use, this is going t ogive you some pretty good yield.

If you have money and you have enough patience to wait around you can actually use a CD ladder to get the most for your money.

If you want money available for emergencies and you want to have access to your money you’ll probably want a savings account instead.

Does Credit Union Offer CDs?

Credit unions offer CDs, but they call them to share certificates. They essentially work the same though. They have terms that range from several months to years. The minimum deposit and the terms and conditions will vary by the institution and the CD that you choose.

Credit unions will often offer more than banks. Small credit unions still have branches and ATMs, so you can visit them in person and commit to a time period of what you want your CD to be.

How Much to Keep in a Savings Account?

Calculating your savings potential and estimating how much you should save can be done by using your age. Remember to not get discouraged if it's too late. It is possible to get back on track.

First, there is no one-size-fits all solution. Your savings and goals should be matched to your lifestyle. This includes everything, from how you shop to where you live to if your kids are grown, whether you rent, or have a mortgage. Each person has their own magical number, based on their financial situation.

Specific savings goals can help you find your magic number. You can set a goal for how much you save. For example, if you open a savings account to pay for a vacation, a house purchase, or a wedding, then the amount that you keep in it will be determined. You might need $5,000 to go on a vacation, $15,000 to buy a new car, or $20,000 for education. However, emergency funds are not limited to a specific amount you should aim at.

Because everyone has different needs for a rainy day fund, how much cash should you have in savings or money market accounts for emergency situations?

Financial experts recommend that you keep three to six months of your monthly expenses in emergency savings. If your monthly expenses are $3,000 then you should have between $9,000 to $18,000 in an emergency savings account or money market account. This will allow you to be ready for when you need it.

What if your income or expenses fluctuate month to month? Perhaps you are self-employed, or work as a freelancer? You could use your average monthly spending to guide you in this situation.

It is important to save money for both immediate goals and long-term goals. Although a small amount of cash can be helpful, such as a tax return, it is not a necessity. It's all about saving the amount that you can afford and being consistent.

What is the Safest Place to Keep Money?

Savings accounts with high yield are the best type of account to hold your money. FDIC-insured bank accounts are extremely liquid and resistant to market fluctuations. Keep in mind that inflation could cause your money to lose purchasing power if it exceeds your annual percentage yield (APY).

TIPS are Treasury inflation-protected Securities. These securities account for inflation. These inflation-protected bonds have a principal that increases with inflation and decreases with deflation. They pay interest twice a year at a fixed rate, which is added to their adjusted principal. These interest payments increase with inflation and decrease with deflation.

Commodities and gold have been used as a hedge against inflation. People often consider gold to be an “alternative currency,” particularly in countries that are losing their currency. Investors should be aware of volatility in commodities and use caution when trading them.

Should I Keep Money in Savings or Invest?

There are two ways to achieve financial security: investing and saving. The act of saving money for the future. Investing refers to the act of purchasing assets in order to make income or profits. These assets could be anything, from collectibles to real estate, but securities like stocks, bonds and mutual funds (ETFs), are all common.

Saving money should be considered before investing. It is the foundation on which your financial house is built. It is not your inheritance that will give you a lot of wealth. Your savings will be what you need to fund your investments. Your savings should cover your personal expenses such as your mortgage, monthly loan payments, insurance costs and food bills for three to six months. Only once these are in place (and that you have insurance), can you start investing.

You can save money and invest with a solid budget. Your situation will determine how much you save and how much to invest. To achieve financial security, you need to pull both the saving and investing levers. Savings are for short-term goals, while investing is for long-term financial security. You'll be able to master both skills and achieve financial success. 


You should get a CD if you want to earn high interest in your money and know for sure that you won’t need access to it in the near future. There are high penalty fees for withdrawing money early out of a CD.

Putting your money into a high-yield savings account will allow you to earn more money over the long term and be able to give you something to look forward to when you withdraw the money after your term has ended.

You should get a savings account if you want to tuck some money away for the future. Savings accounts work best for people that are saving for the near future and need just a little money to keep in a safe place.

They are good for emergency funds and offer you a way to get fast cash if you need to make car repairs, pay medical bills, or do anything else.

If you put money in a savings account, you are basically lending the bank money. They will borrow some of the money every time they have to give out a personal loan, an auto loan, or a home loan.

If they use your money to give out a loan, they will charge higher interest on the loan than what they pay you for on your account. This allows them to make a portion of their money back. The difference in interest that they charge is how banks stay in business.

This is determined by the APY on your savings account. Some savings accounts have a higher yield than others, which means they earn more interest.

If you put $10,000 in a savings account with a 0.5 percent APY, you will earn about $50 per year.If you put your money in a high-yield savings account, you could earn $5 or more over the course of a year.

If you have a large sum of money, putting it in the right place can allow you to earn the highest interest rate possible, allowing you to have even more money by the end of the year. Both high-yield savings accounts and checking accounts can earn you interest, but they aren't your only option.

Look for checking accounts that offer sign-up bonuses and additional interest for the first year of banking. Money market accounts typically pay slightly higher interest rates than savings accounts. If you don't think you'll need any of your savings, you can open a CD. They pay the highest interest, but there are significant fees if you want to withdraw some of the money.

Due to the rising inflation, there is good chance the FED will increase interest in 2022 or 2023, and accordingly – banks and credit unions will offer better interest on savings products.
With the nationwide rollout of the Covid-19 vaccination, the economy has been slowly recovering, and CD rates are expected to rise.

However, the ultimate full recovery will be a gradual process. CD rates had fallen to near 0.5% by 2021 as the economy recovered from the pandemic shock. With the Federal Reserve emergency rate cuts in an effort to stimulate the economy, banks and credit unions lowered CD rates as well.

In most cases, it is impossible to lose money in a CD account. Your bank or credit union deposit, like any other banking deposit, is insured by the Federal Deposit Insurance Corporation (FDIC).

This means that if you file for bankruptcy, you will be able to recoup your investment up to $250,000. Even if you decide to cash out your CD before it matures, the value is usually not lost. However, if there is a breach of contract, the deposit institution may penalize your withdrawal.