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CDs vs. Savings Accounts: Which Is Right for You?

Sarah Li Cain
Cole Tretheway
By: Sarah Li Cain and Cole Tretheway

Our Banking Experts

Ashley Maready
Check IconFact Checked Ashley Maready
Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page. APY = Annual Percentage Yield. APYs are subject to change at any time without notice.

CDs and savings accounts both earn you interest on your deposits, but one is not like the other. A CD locks up your money for six months to five years but can typically earn you better returns than a savings account can.

Here's the quick way to choose between CDs vs. savings accounts: Open a CD to earn interest on money you'll leave untouched until the full CD term is up. Open a savings account to earn interest on money you may need anytime.

Still on the fence? Read on. Below, we'll compare the features of CDs vs. savings accounts so you can choose with confidence which deposit account is right for you.

How do CDs work?

A CD, or certificate of deposit, is a "fixed" type of interest-bearing bank account that locks up your money for an agreed-upon length of time. You give up access to your funds for a specified period. In return, you receive a higher interest rate than you would through a typical savings account.

Withdrawal penalties: CD terms typically range from six months to five years. If you withdraw money early, you'll usually pay a penalty. This penalty could shrink your earnings, or worse, lose you money. Should you need your money early, you must withdraw 100% of your deposit.

Initial deposits: CDs tend to require high initial deposits. CDs don't let you deposit additional money until the term expires.

Insured: CDs are insured through either the FDIC or the NCUA, depending on whether you open an account through a bank or credit union. Deposits are insured up to $250,000 within limits. Insurance protects your deposits should the bank go belly-up.

How do savings accounts work?

A savings account is an interest-bearing deposit account that typically pairs with a checking account. You can deposit money anytime. You may withdraw or transfer money six times or more monthly (per Regulation D), depending upon your bank or credit union.

Flexible: You can transfer savings account funds to a checking account in order to spend your money via checks and debit cards. You can transfer money from a checking account to a savings account anytime with no penalty.

Insured: Savings accounts are either FDIC- or NCUA-insured, depending on whether you use a bank or credit union. Regardless, you're insured up to $250,000 within limits. FDIC insurance protects you should your bank suddenly fail and file for bankruptcy.

CDs vs. savings accounts

CDs and savings accounts both earn you interest on your deposits.

CDs earn you the highest possible interest rates, but savings accounts let you make some monthly withdrawals for free. It's a tradeoff: profitability versus flexibility.

Compare CDs vs. savings account features below.

Feature CD Savings Account
High initial deposit Yes No
Easy withdrawal No Yes
ATM access No No
Check-writing No No
Monthly fees No Varies
High interest rates Yes Yes
Early withdrawal fees Yes No

When to open a CD

You should open a CD when you want to earn money on deposits over specific time periods. CDs help you save for specific goals. CDs are inflexible, and you can use that to your advantage.

For example, say you want to purchase a used car in two years. You can put money in a 2-year CD and call it "car money." The threat of withdrawal penalties will discourage you from spending that money before two years is up. When the term ends, you'll have the initial deposit to spend toward purchasing a used car, plus interest.

A CD offers better rates than a savings account for specific terms (lengths of time). Withdrawal penalties encourage you to keep your money deposited, reducing temptation to spend.

When to open a savings account

You should open a savings account when you want to earn money on deposits you may need to withdraw whenever. Savings accounts help you save for uncertain times.

For example, say you want to protect yourself in case you lose your job. You don't know when that may happen -- it could be tomorrow, two years from now, or never. You can put money in a savings account and call it your emergency fund. You'll earn passive interest income, and should you suddenly lose your job, you can withdraw money immediately to pay rent.

A savings account offers better rates than CDs do for unspecific terms (lengths of time). You can withdraw money earlier than expected without paying fees -- meaning more money in your pocket.

How to open a CD or savings account

Ready to move on to opening an account? You can do so easily. Below is a checklist of steps you can follow to quickly open a bank account online:

How to open a CD or savings account online:

  1. Gather your relevant personal and financial information.
  2. Fill out the online application form.
  3. Fund the account.

Opening an account in person is even simpler (you'll have to travel, though). Just gather your personal details and head to the nearest bank branch. A representative will guide you through the process of opening an account. You may have to wait in line to speak to a representative.

RELATED: Beginner's Guide to Banking


Read CD reviews

If you're looking for more in-depth information on CDs, here are a few we've reviewed:

Still have questions?

Here are some other questions we've answered:


  • Yes, the best CD rates are typically better than the best savings account rates. That's because CDs give banks confidence you'll leave deposits alone. But some high-yield savings accounts offer rates compatible with average CDs. Shop around to get the best deals.

  • No, CDs are not safer than savings accounts. FDIC-insured banks protect both savings accounts and CDs from bankruptcy. And bank-level encryption protects both account types.

  • CDs lock up your money for six months to five years. You must pay penalties to withdraw early, and you must withdraw your entire deposit. But savings accounts often pay you lower returns.

Our Banking Experts