Your CD Rate Matters More Than Your Savings Account Rate. Here's Why

If you are investing in a certificate of deposit (CD), you should take the time to carefully research the best rates that are available to you. This is very important -- much more so than when you're deciding which high-yield savings account you should put money into.

Here's why it's worth putting in more time and effort to find the best CD rates than you might finding a new savings account.

You'll be stuck with your CD but not your savings account

The biggest reason why your CD rate matters so much more than your savings account rate is because you can just pull your money out of your savings account whenever you want. That's not the case with CDs.

Say, for example, you didn't really do much due diligence when shopping around for a savings account -- you just picked one. And a month or two later, you find out you could have been earning 5.00% APY (annual percentage yield, or how much money you'll earn in a year) instead of the 4.00% your account is paying you. You can just close your current savings account and move your money to a new one without any issues -- usually online, in a matter of minutes.

If you buy a CD, though, you have to commit to leaving your money invested for the duration of the CD term to avoid penalties. So if you commit to a 1-year CD and it turns out you're being paid a much lower rate than you could have been earning if you'd shopped around more, you'll lose out on the higher returns for a whole year.

The longer the CD term you're invested in, the more important it is to put in the time to really look at all your options and get the best rate.

Your CD rate can't change but your savings account rate can

There's yet another important reason that your CD rate matters a lot more than your savings account rate. Your CD rate is guaranteed, but your savings account rate usually isn't.

Typically, the rate you're offered on a savings account is variable. The bank can change it at will. So, you may have a great rate right now, but it could potentially change next week or next month or next year. Since there are no guarantees, it doesn't matter as much. An account offering the most competitive rate today won't necessarily be offering that rate tomorrow.

With a CD, though, the rate you get is guaranteed for the duration of the CD term. So, it's worth putting in the time to search for the highest possible yields because you can be confident you'll be getting paid that competitive rate for quite a while. Again, this is especially true if you're buying a CD with a long term like a year, three years, or five years.

For these reasons, you don't want to open a CD until you've really taken the time to find the rate that's the most competitive out there. Check out The Ascent's guide to the best CD rates as a good place to get started in your search.