Is a CD or a Savings Account a Better Place for Your Money Right Now?

Right now is an excellent time to have money in the bank. Why's that, you ask? Well, the Federal Reserve's repeated interest rate hikes have increased the rate banks pay to lend to each other, and as a result, those banks have steadily increased APYs on deposit accounts for consumers. This includes savings accounts and certificates of deposit (also known as CDs).

If you've got some money saved up and are looking for a new home for it right now, this article is for you. Let's discuss the situations CDs and savings accounts are best for, and learn how to pick the right one for you and your money.

CD: A future purchase on a set timeline or income over time

If you are reasonably sure you won't need to add any more money to your current balance and now you're ready to just let it sit and grow with interest, a CD is a good option for you. For example, let's say you've saved up for a dream vacation, but your trip isn't until next year. If you open a 6- or 12-month CD account, you'll keep your money safe and earn a solid rate of interest on it, too.

The one catch is that you won't be able to withdraw or add any money during the CD's term, lest you incur a penalty equal to a few months' worth of earned interest (or more -- it depends on your CD issuer's rules). So if you're still actively saving, or don't quite know when you'll need your money, a CD might not be a good fit (consider a savings account instead -- more on the below).

Our Picks for the Best High-Yield Savings Accounts of 2024

American Express® High Yield Savings APY 3.90% Rate info 3.90% annual percentage yield as of December 6, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	APY 3.90% Rate info 3.90% annual percentage yield as of December 6, 2024. Terms apply.	Min. to earn $0
Capital One 360 Performance Savings APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	Min. to earn $0
Western Alliance Bank High-Yield Savings Premier APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	Min. to earn $500 to open, $0.01 for max APY

However, if you've got a chunk of money and different goals, you could try building a CD ladder. This is when you divide up your money and open CD accounts of differing lengths, ensuring you're frequently having money (plus interest earned) become available. Plus, you'll be able to take advantage of increasing CD rates over time. Check out the best CD rates to find the best accounts for your CD ladder.

Savings account: Emergency fund or other savings without a timeline

What if you're still actively saving money and don't want to lock your money up for a set period? This is where a savings account shines. It gives you flexibility, and these days, the APYs on the best high-yield savings accounts are very generous -- you could earn upward of 4% or even 5% on your saved cash.

Note that I've specified "high yield" for your new savings account. What's the difference? Well, a traditional savings account doesn't come with rates that beat inflation (currently at 3.7%, according to the latest Consumer Price Index Summary report). Per the FDIC, the current average APY on a savings account is a measly 0.46%. That's a far cry from the 4% or 5% you could command with a high-yield savings account! But this average includes savings accounts offered by big traditional banks -- which often pay in the neighborhood of 0.01%. So rather than putting your cash into one of these, look to online banks for a well-paying account.

A savings account is an especially good place for your all-important emergency fund. This is the money you have saved for unplanned expenses, which are always lurking around every corner (think a tire blowout, a surprise trip to urgent care, or a new hot water heater). Since you always need to have this money available, and having to pay a penalty to access it would be a blow on top of whatever emergency expense you have, avoid CDs for your emergency fund or any money you could need with little to no notice.

Two great choices for your money

No matter which account you land on, both CDs and savings accounts are a solid place to keep your cash. Just ensure you're choosing an FDIC-insured bank, as up to $250,000 of your money will be protected in the event of bank failure. Take advantage of the higher APYs being offered and watch your money grow.