Which Is Better for Your Savings Goals: A Bank Bonus or a High-Yield CD?

If you're fortunate to have some savings in 2024, then you might be presented with the challenge of where to keep it. Unless you're investing it in a brokerage account, you're probably looking for a bank account with a high interest rate, like a certificate of deposit (CD). And while CDs have decent rates right now, another option for the short term could offer you potentially better returns: a checking or savings account with a bank bonus.

Now, there are some caveats to bank bonuses -- like getting an account with monthly fees -- that would make CDs the better choice. But if you're on the fence about where to put your money, let's look at when you should open a CD and when you might earn more with a new bank account.

Bank bonuses could give greater short-term returns

Bank bonuses are issued for opening a new account at a bank and meeting certain requirements. For example, you can earn $525 from Wells Fargo by opening a savings account by April 1 and depositing $25,000 in new money within 30 days. You then have to keep this money in your account for 90 days to get the bonus.

Earning a $525 bonus on a $25,000 investment over three months is a decent return for a savings account. If we were to convert this $525 bonus into an APY, it would be 8.66% of $25,000. On average, that's about $175 per month.

No CD right now offers an interest rate of 8.66%. In fact, many of the best CDs have rates below 5.50%. For example, a 3-month Ponce Bank High-Yield CD from Raisin has an APY of 5.20%. If you deposited $25,000 into this CD, you would earn an average of $107 monthly for a total of roughly $322. In this case, the bank bonus would offer you more.

Of course, earning a bonus on a savings or checking account isn't really an apples-to-apple comparison with CDs. For one, CDs earn interest for the length of their terms, then close or renew terms with a different rate. Savings or checking accounts, however, are open indefinitely and won't close unless you initiate it. What's more, some have monthly service fees that can eat into your returns. For example, a Wells Fargo Way2Save Savings account has a $5 monthly maintenance fee, which is waivable but still something to consider.

All in all, the question of bank bonus versus CD is most relevant for those who are already searching for a new checking or savings account. In this case, earning a bank bonus on your savings could result in a higher return than what a CD could offer you. But CDs do have some unique perks, and you should also consider these before making your decision.

CDs can give guaranteed returns for longer periods

A bank bonus might give you a greater return overall. But it's a one-time payment, which cannot be extended or renewed. What's more, if a bank suspects you of churning -- that is, earning bonuses only to close an account later -- it may not accept your application for the new account.

If you have a longer time horizon, a CD might suit your goals better. These accounts have fixed interest rates that last for as long as the CD term. For example, you can get a 12-month Bread Savings CD with 5.25% APY. What's more, if you set up auto-renewal, you can get a 5.30% APY for the CD's second year. With a $25,000 deposit, you'd earn $1,312.50 for the first year and $1,394.56 in the second.

Of course, you could also do both. For example, Chase is currently offering a $300 bank bonus when you open a new Chase Total Checking® account and receive at least $500 in direct deposits within the first 90 days (offer expires April 17, 2024). This bonus does not require a massive deposit; you only need to have the sufficient amount of direct deposits to qualify. In this way, you could deposit your savings in a CD and let it earn at a fixed APY.

In sum, if a bank gives you a bonus for keeping your savings in a new account for a period of time, like three months, you might net more than opening a CD with an equal term. But if you're not in the market for a new bank account, or you want to freeze today's high rates for a longer period, don't sweat it -- a CD can still give you a decent yield. Either way, take a look at today's best CD rates, compare those with bank bonuses, and see which one offers you the best value for your savings.