CDs vs. High Yield Savings Account: Which Is Better for Your Money in 2024?

This is an interesting time to have some extra savings.

Not only are rates at a two-decade high for both savings accounts and CDs, but changes in the Federal Reserve's monetary policy could soon spell the end of both.

Near the end of 2023, policymakers for the central bank forecasted cuts to the federal funds rate sometime in 2024. If that holds true, then we would start to see reductions in the rates on savings accounts, CDs, and money market accounts.

While the central bank hasn't made its decision just yet, it does seem we're at a crossroads: The uphill climb of interest rates appears to have flattened, with a steady downhill stroll expected in the near future.

Within this flux of changing rates, savers have to make an important decision. Do you want to lock in today's high rates with a CD, or have greater access to your money through a savings account, even if its APY is slowly burning out? Let's take a closer look at both.

Why you might choose a CD

If a guaranteed rate of return sounds good to you, then I wouldn't hesitate to lock a portion of your savings into a certificate of deposit (CD).

Truth is, the best CD rates haven't been this high since 2007 -- the same year the world was introduced to the first iPhone. During that time, some banks were offering rates as low as 0.01% for both CDs and savings accounts, which is about as profitable as searching for coins under drink machines. There's no telling when we'll see CD rates hit 5% again after this cycle of rate hikes is over, though that's not to say it can't happen again in the near future.

Locking your money into a CD would freeze today's rates until the end of your CD's term, effectively extending high APYs regardless of how the market changes. It could also discourage you from spending your savings, or at least postpone the spending until after your CD matures.

That brings up a good point: You might want to choose a CD if you have savings you won't need for the near term. Otherwise, you might be forced to withdraw from one early, which could result in a hefty penalty. That rules out putting emergency funds and other savings that have a near-term purpose, like buying a house or car, into a CD. You can certainly find short-term CDs -- like six months -- that can help you meet your goals with extra earnings, but longer terms may be risky.

Why you might stick to a high-yield savings account

If separation from your savings gives you anxiety, you can still get a good rate on a high-yield savings account right now.

Unlike CDs, high-yield savings accounts let you withdraw money freely. Depending on your bank, this could mean withdrawing savings from an ATM. More likely, your high-yield savings account will be online and will let you access funds electronically. Some accounts are even a hybrid between checking and savings -- like the SoFi Checking and Savings -- which is ideal if you want to spend using a debit card.

The drawback of savings accounts is that you'll have a variable APY. That means the rate on your account can fluctuate throughout the year, potentially decreasing your APY. This differs from CDs, which have fixed rates and guaranteed returns.

So, which is better for 2024?

To be sure, the APYs on high-yield savings accounts are currently on par with many top-paying CDs. But CDs currently have a slight advantage over savings accounts in that they'll let you freeze rates for a longer period. This could allow you to continue growing your savings at today's high rates, even while those with savings accounts look up and wave sadly.

If a CD doesn't work for you, that's okay. You can still earn high interest in a savings account, even if you'll eventually settle for a lower rate. Do what's best for your household -- you might even want to consider CD ladders -- but act fast, as these high rates may not be around for much longer.