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Banking

Still deciding between a high-yield savings account and a CD account ? Here are their main differences

CD accounts offer the ability to earn slightly higher APY's but the differences don't stop there.

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High-yield savings accounts have become a popular vehicle for depositing and growing savings since they allow account holders to earn significant interest on their balances. But when it comes to stashing away your cash, there's another option some individuals may want to consider.

Certificate of deposit accounts (CD accounts) operate similarly to high-yield savings accounts in some ways, but the two have some very important differences.

What we'll cover

What is a high-yield savings account and how does it work?

High-yield savings accounts let you earn a higher interest rate (compared to traditional savings accounts), which allows your money to grow even faster as it sits in your account. To put this into perspective, right now, some high-yield savings accounts are offering over 5% interest, whereas the national average APY on traditional savings accounts is just 0.40%.

The interest rate that these accounts offer is noted as APY, which stands for annual percentage yield. The higher your APY on a particular savings account, the more interest you'll earn and the faster your money will grow. You can also continue to make contributions to the account regularly to grow your balance and amount of interest earned even faster.

It's important to note, however, that the APY that savings accounts offer when you sign up can change at any time. These rates go up or down in accordance with the Federal Reserve changing its benchmark interest rate. In other words, there will be times when you earn less money on your balance but also times when you earn more money on your balance. Regardless, though, it's still more than you'd earn if you were to keep your money in a traditional savings account. And, you still have access to your cash when you need it as you would in a normal savings account. 

Pros

  • Offers a higher APY compared to traditional savings accounts
  • Can make deposits at any time
  • Can be FDIC-insured
  • Generally considered a safe place to put your money

Cons

  • There may be a cap on the number of withdrawals you can make each month
  • May have to wait a few days to complete a transfer between savings and checking accounts

What to look for in a high-yield savings account

First and foremost, you'll want to look at the account's APY. A higher APY means you'll earn more on your savings account balance, so it's important to shop around before committing to an account.

You also want to consider any fees associated with the account. For example, some accounts will charge a monthly maintenance fee if you don't meet certain requirements, such as keeping a minimum balance in the account. Generally speaking, it's also a good idea to select an account with as few fees as possible.

You'll also want to make sure the account you chose is FDIC-insured. This way, you can protect your money from bank failure. It's standard for savings accounts to be FDIC-insured for up to $250,000.

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What is a CD and how does it work?

CDs are another type of account that institutions offer. Similar to a high-yield savings account, CDs allow you to deposit money to earn interest on your balance. Sometimes, the interest you earn on a CD can even be higher than what you earn on a high-yield savings account.

But with a CD you need to keep your money locked into the account for a specified amount of time. This is known as the term length. Term lengths range between three months and five years, and usually the longer the term, the more interest you'll earn. Typically, you should avoid trying to access your money before your term ends or you'll get hit with an early withdrawal penalty.

The penalty fees can vary depending on your bank or credit union. Usually, though, the penalty amounts to the interest earned, or the interest that you would have earned, over a certain number of days or months.

Also, the interest rate offered by high-yield savings accounts can change while your money is in the account but with CDs, the rate you lock in when you make a deposit stays the same throughout the entire term. This can be a good thing if you open an account before the rate drops. You also cannot make additional contributions to the CD after opening the account and making an upfront deposit, unless you choose a specialized CD option known as the add-on CD. However, this option may not be as widely offered and they may offer lower interest rates compared to traditional CDs.

Pros

  • Could offer a higher APY compared to high-yield savings accounts
  • Can be FDIC-insured
  • Generally considered a safe place to put your money
  • Fixed interest rate for the entire CD term

Cons

  • Early withdrawal penalty
  • Typically can't make additional deposits
  • Must keep your money locked up for the entire term

What to look for in a CD account

Similar to choosing a high-yield savings account, picking the right CD will largely depend on the APY it offers. But you should also carefully consider the term length of your CD. As a reminder, the longer the term, the more interest you'll earn but if you need access to the money before the term is over, you can end up paying a penalty.

So make sure the CD account has term options that suit your circumstances. Term lengths that are too long for you may not be worth the higher APY.

Also, make sure that you can meet the minimum deposit requirement for a CD. Minimums vary depending on the bank you choose — some of them can be as small as $500 while others may require thousands of dollars.

And just like with high-yield savings accounts, you should make sure that your CD account is FDIC-insured to protect your money.

How to choose between a high-yield savings account and a CD?

Opening a CD can be a good idea if you're saving up for a large purchase — like a home or a car — that you hope to make within the next six months to two years and you want your money to grow faster without having to worry about stock market volatility. However, you still have to make sure that you are depositing money you definitely won't need for that time period, since you can be penalized for withdrawing money before your term is over.

Because of this, CD accounts are not the best account for creating an emergency fund. Emergencies can pop up when you least expect them. Because of this unpredictability, you never know when you'll need to make an account withdrawal. In this case, a high-yield savings account would be a much better fit for growing your emergency fund.

How to open a CD and a high-yield savings account

The processes for opening a CD or a high-yield savings account are both simple and similar to each other.

The first step is to find the account that's right for you. This means weighing each feature carefully and choosing an account that suits your needs and your financial situation.

Once you've decided on the account you want, you can prepare to apply. You'll typically need to provide a few pieces of identifying information, like a photo ID and social security card. You'll also need to supply your address and contact information. In some cases, you may also need your first deposit ready with you. Some — not all — high-yield savings accounts let you open the account with a deposit. Most CD accounts require a deposit to open the account.

Next, you'll simply follow the institution's steps to open your account. You can usually apply either online, in-person or over the phone but some institutions may not have a physical brand or over-the-phone option.

Once your account is open and active and any required deposits are made, the hard part is pretty much over.

Best high-yield savings accounts

Select ranked the Marcus by Goldman Sachs High Yield Online Savings as the best high-yield savings account for no fees. And if you want the opportunity to earn even more extra cash, the SoFi Checking and Savings account offers a welcome bonus. For more information, check out our full list of the best high-yield savings accounts.

Marcus by Goldman Sachs High Yield Online Savings

Goldman Sachs Bank USA is a Member FDIC.
  • Annual Percentage Yield (APY)

    4.40% APY

  • Minimum balance

    None

  • Monthly fee

    None

  • Maximum transactions

    At this time, there is no limit to the number of withdrawals or transfers you can make from your online savings account

  • Excessive transactions fee

    None

  • Overdraft fee

    None

  • Offer checking account?

    No

  • Offer ATM card?

    No

Terms apply.

Pros

  • Strong APY
  • No minimum balance or deposit
  • No monthly fees
  • No limit on withdrawals or transfers
  • Easy-to-use mobile banking app
  • Offers no-fee personal loans

Cons

  • Higher APYs offered elsewhere
  • No option to add a checking account
  • No ATM access

SoFi Checking and Savings

SoFi Bank, N.A. is a Member FDIC.
  • Annual Percentage Yield (APY)

    Members with direct deposit earn 4.60% APY on savings, no minimum balance needed. Members without direct deposit earn 1.20% APY on savings balances, and everyone earns 0.50% APY on checking balances.

  • Welcome bonus

    Earn a $300 welcome bonus when you direct deposit a total of $5,000 or more within 25 days of your first direct deposit. Get a $50 welcome bonus when you direct deposit between $1,000 and $4,999.99 within 25 days of your first direct deposit.

  • Fees

    No monthly fee and no excessive transaction fees.

  • No-fee overdraft protection

    No-fee Overdraft Coverage up to $50 for SoFi members with $1,000 or more in total monthly direct deposits. Purchases exceeding $50 are declined.

  • Offer ATM card?

    Yes, this account offers a debit card that allows purchases and ATM withdrawals. Terms apply.

  • Offer checking account?

    Yes, bundled with savings account.

  • Maximum transactions

    Up to 6 free withdrawals or transfers per statement cycle. Transaction amount limits apply.

Pros

  • A welcome bonus of $300 with direct deposit totaling $5,000 or more within 25 days of your first direct deposit. Or a welcome bonus of $50 with direct deposit totaling between $1,000 and $4,999.99 within 25 days of your first direct deposit
  • Strong 4.60% APY with direct deposit
  • No minimum balance or deposit needed
  • No monthly fees
  • Comes with checking account and ATM access
  • Receive your pay check in your account up 2 days early automatically when set up direct deposit
  • Save change automatically with Roundups and set savings goals with Vaults
  • No foreign transaction fees
  • FDIC insurance up to $2 million through the SoFi Insured Deposit Program

Cons

  • Non-direct deposit APYs are low compared to other high-yield savings accounts
  • No reimbursement for out-of-network ATM fees
  • No physical branches

Best CD accounts

When it comes to CD accounts, Select ranked the Synchrony Bank CD as the best option for locking up your money for three to six months. If you're comfortable locking up your money for a longer period of time, the Ally Bank High Yield CD lets you do that for up to five years. See our full list of the best CD accounts for more.

As you can see, currently, their APYs are slightly lower than the high-yield savings accounts, but on the flip side, you would be locking in the rate for a longer period of time.

Synchrony Bank CDs

Synchrony Bank is a Member FDIC.
  • Annual Percentage Yield (APY)

    From 0.25% to 5.15% APY

  • Terms

    From 3 months to 60 months

  • Minimum balance

    None

  • Monthly fee

    None

  • Early withdrawal penalty fee

    There may be an early withdrawal penalty if you withdraw funds from the principal prior to the CD maturity date (the last day of the CD term). The penalty is applied to the amount of principal withdrawn (there's no penalty on interest). For the No-Penalty CD, early withdrawals are not permitted within the first 6 days after account funding. Following that, only withdrawal of the entire balance is allowed.

Terms apply.

Pros

  • Above-average APYs
  • Range of CD terms
  • No minimum balance
  • No monthly fee
  • Offers CD options to raise your APY, withdraw with no penalty and save for retirement

Cons

  • You can’t access your money before your CD term ends
  • Early withdrawal penalty fee on certain CDs
  • No physical branch locations

APYs are subject to change at any time without notice. Offers apply to personal accounts only. Fees may reduce earnings. For CD accounts, a penalty may be imposed for early withdrawals. After maturity, if your CD rolls over, you will earn the offered rate of interest for your CD type in effect at that time.


Ally Bank® CDs

Ally Bank® is a Member FDIC.
  • Annual Percentage Yield (APY)

    From 3.00% to 4.50% APY

  • Terms

    From 3 months to 5 years

  • Minimum balance

    None

  • Monthly fee

    None

  • Early withdrawal penalty fee

    High Yield CDs and Raise Your Rate CDs have early withdrawal penalties that vary based on your CD term. With the No Penalty CD, withdraw all your money any time after the first 6 days following the date you funded the account and keep the interest earned with no penalty.

  • Terms apply.

Pros

  • Above-average APYs
  • Range of CD terms
  • No minimum balance
  • No monthly fee
  • Offers CD options to raise your APY, withdraw with no penalty and save for retirement
  • 0.05% Loyalty Reward automatically added to CD account renewals

Cons

  • You can't access your money before your CD term ends
  • Early withdrawal penalty fee on certain CDs
  • No physical branch locations

Compare offers to find the best savings account

Why trust CNBC Select?

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of banking products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Bottom line

Both CD and high-yield savings accounts are considered safe ways to store and grow your money for long-term and short-term goals. As always, carefully consider the differences between the two and compare features across accounts to choose the option that's right for you.

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* SoFi members with direct deposit can earn up to 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum direct deposit amount required to qualify for the 4.60% APY for savings. Members without direct deposit will earn up to 1.20% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Interest rates are variable and subject to change at any time. These rates are current as of 12/12/23. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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