CDs vs. Savings: Where Should You Put Your Money Now?

No pun intended but this is certainly one of the most interest-ing years to have some savings to play with. Everywhere you look, there's another bank purporting to have the most competitive APYs -- from CDs to high yield savings to money market and checking accounts.

But when it comes to choosing a savings account or certificate of deposit (CD), a clear winner will usually emerge. Both can earn high interest right now, but, depending on your goals and time horizon, one might be the better investment for you.

CDs: Better for a guaranteed rate of return

If there's one thing that CDs have going for them, it's the ability to lock in a savings rate for the length of your term. This ability guarantees that you'll earn a certain amount of interest, no matter what happens in the overall market.

Currently, the best CDs are paying out at rates above 5%. While many high yield savings accounts are also paying out at comparable rates, they typically can't lock in those rates for a specific period of time. Instead, savings accounts have variable annual percentage yields (APYs), which fluctuate with macroeconomic conditions. So, if the Federal Reserve decided to cut interest rates in 2024 -- which is likely -- your bank could cut the rate in your savings account almost immediately.

In contrast, a CD has a fixed interest rate. The APY you agree to is the rate you'll have throughout your term. This makes long-term CDs a particularly attractive investment. If you lock in a high APY today, you could theoretically prolong today's high rates into a period when ongoing CD rates are much lower.

This ability to lock in rates comes with some downsides, like limited access to your savings. But, for some people, this could actually double as a benefit. By locking your savings into a CD, you won't be tempted to spend it. This might help you hit your savings goals, especially if you don't trust yourself with your money.

Savings account: Better for flexible withdrawals

Savings accounts don't have fixed interest rates, but they do let you withdraw money with greater flexibility. While some high-yield savings accounts have limits on how much you can withdraw per month (per Regulation D), cash money is usually only an electronic transfer or ATM withdrawal away. This makes a savings account better for money you plan on using in the near-term, as well as emergency funds.

Standard CDs, in contrast, have early withdrawal penalties, usually equal to a few months' worth of interest. Worse, you can't make partial withdrawals with a CD; you have to liquidate your entire account. So if you had $25,000 in a 12-month CD, and you needed $5,000 to cover an emergency bill, you would have to withdraw the full $25,000 and close your CD account.

Aside from flexibility, savings accounts may have another advantage over CDs: no minimum deposits. Many CDs require you to deposit a certain amount to earn the advertised interest rate, anywhere from $500 to $50,000. In contrast, many online savings accounts have no minimum deposits (some, especially those at brick-and-mortar banks, may require a minimum balance to waive fees). This could make a savings account more accessible, especially if you don't have a lot of savings.

All in all, both CDs and savings accounts present a unique opportunity to earn interest at a decent rate of return. A CD could freeze that rate for the foreseeable future, while a savings account could yield generously now and give you flexibility to withdraw later. Make a choice for which is better for you, then take a look at our list of bank reviews to discover the best offers for both.