CDs Pay More Than Savings Accounts. Here's Why I Still Don't Use Them

If you want to earn as much as possible on your savings, certificates of deposit (CDs) are usually the way to go. Some of the best CDs currently have rates of up to 5.55%, at the time of this writing. With high-yield savings accounts, rates generally max out at about 5.00% to 5.30%.

So, you can potentially earn about 0.25 to 0.50 percentage points more with a CD than you would with a savings account. CDs also have fixed rates. If you get a 1-year CD with a rate of 5.55%, you're guaranteed that rate for the entire year. If you get a savings account with a rate of 5.30%, it could drop at any time.

Despite the perks of CDs, I never use them. I've always used savings accounts, and I'm fine with giving up the extra interest I could be earning. If you're trying to figure out the right banking product for your savings, here's why you may want to do the same.

Savings accounts have everything I want for my savings

When deciding where to put my savings, there are three features I look for. They are, in order of importance:

1. Security: I don't want any risk of losing money.
2. Access at any time: I want to be able to withdraw money when I need it.
3. Solid return: I want an account with a competitive APY.

High-yield savings accounts check all the boxes. They're safe -- I always make sure to use accounts with FDIC insurance. That covers up to $250,000 per eligible account if the bank fails. (To be fair, many CDs are FDIC-insured, too.)

They let me access my money at any time. This is one of the biggest drawbacks of CDs. You need to keep your money deposited for the entire term. If you take it out before your CD's maturity date (the end of the term), you'll be charged an early withdrawal penalty, normally a few months of interest.

High-yield savings accounts also have competitive APYs. They're generally not quite as good as on CD rates. But I'm not worried about getting the highest-possible return on my savings. I have a brokerage account for that, so I can invest a portion of my income.

My savings is my money for an emergency fund and short-term savings goals. It's great to earn some interest, but it's more important to me that I have access to my savings and don't need to worry about early withdrawal penalties.

CD rates aren't high enough to change my mind

If there was a larger difference between CD rates and savings account rates, I'd be more inclined to open a CD. A 2 to 3 percentage point difference would be tempting. But an extra 0.25 to 0.50 percentage points doesn't move the needle that much.

To put these percentages into perspective, let's say you have $10,000 in savings. If you put that in a 1-year CD with a 5.55% APY, it'll earn $555. If you put it in a savings account with a 5.30% APY for one year, it'll earn $530. For agreeing to lock up $10,000 for an entire year, you make an extra $25.

Deciding between a CD and a savings account

That's my personal philosophy on managing my savings. Some people prefer to keep their money in CDs, and that can also work well.

With CDs, you potentially get a higher rate, and you have the peace of mind that the rate isn't going to drop during the term. The tradeoff is that CDs require more planning. You need to figure out how long you can lock up your money.

One popular strategy is CD laddering, which involves opening CDs of various term lengths. This way, your CDs mature at different times. Instead of having all your savings in a 5-year CD, you could divide it up into a 1-year CD, a 2-year CD, a 3-year CD, and so on.

A savings account doesn't provide the same rates, and savings rates can fluctuate. The advantage is that they're uncomplicated, and there's no planning required. Just deposit your money and take it out when you need it. I like that kind of simplicity, which is why I stick to savings accounts.