Don't Overlook This Important Reason to Choose a CD Over a High-Yield Savings Account

If you want a safe place to put your money and not risk losing any of it, you have a few options. A high-yield savings account is one choice. A certificate of deposit is another.

Both savings accounts and CDs are FDIC-insured for up to $250,000 so you don't have to worry you will end up with less than you started with if you invest your funds in either of them. And both are offering pretty competitive yields right now, with some savings accounts and CDs paying over 5.00% APY.

While the two types of accounts are similar in certain ways, there are some big differences between them. And CDs offer one key benefit that savings accounts don't. Here's why you cannot overlook it as you choose where to put your money.

This benefit of CDs could be more important now than ever

CD rates typically tend to be higher than the rates on high-yield savings accounts, which is definitely a good thing. However, there's actually a potentially bigger and more important advantage CDs have: Certificates of deposit can come with guaranteed fixed interest rates. If you buy a 5-year CD with an interest rate of 4.00% (which is entirely possible right now), you will earn that 4.00% return for the entire five years your funds are invested in the CD. This is true regardless of what happens to interest rates in the market as a whole.

High-yield savings accounts, on the other hand, don't guarantee that the rate offered when you open an account is going to last for any specific period of time. In fact, the rate you're offered on these types of accounts is typically variable. This means while it may be pretty high right now (with some accounts offering rates upward of 5.00%), today's high-yields could quickly fall tomorrow.

In 2020, for example, the best high-yield savings accounts offered rates around 0.40% to 0.50%. That's not a typo with a decimal point in the wrong place. While it's not a given that rates will fall that far any time soon -- those very low rates were during the highly unusual pandemic period -- it's almost inevitable rates won't stay where they are right now near recent record highs. If the Federal Reserve (the U.S. central bank) reduces interest rates or demand for credit falls, rates may drop substantially pretty quickly.

This means if you want to take advantage of the opportunity you have now to earn a generous 4.00% or 5.00% on your money without taking any risk, you may want to choose a CD.

If you want to guarantee your returns, opt for a CD -- if doing so makes sense

Getting a guaranteed rate of return by buying a CD is a big benefit in today's market where these safe investments offer very competitive yields. But you do need to make sure a certificate of deposit is right for you.

The biggest downside of CDs is that you face penalties if you don't wait out the CD term to withdraw your funds from the bank. So if you need easy and quick access to your money soon or you won't know exactly when you'll need the money (such as for your emergency fund), a CD isn't right for you.

If you can leave your money invested for around three months to five years or so, though, consider the big benefit of consistent earnings that CDs offer.