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Are CDs better than savings accounts?

If you want a fixed interest rate, a CD may be better for you than a savings account. A.J. Rich/Getty Images

In today's economic climate with inflation still in the background and the threats of a recession on the horizon, many Americans are looking for alternatives to save and grow their money. While the high rate environment hasn't been favorable for homebuyers or owners looking to refinance, it has greatly enhanced the benefit of opening high-yield savings and certificate of deposit (CD) accounts. The annual percentage yield (APY) on these types of accounts is exponentially higher than what's typically being offered by regular accounts, making now a great time to open either.

While there is no definitive way to determine which is better (it depends on the individual and their personal circumstances), there are some instances in which a CD may be the better and safer route to take.

Start by checking your CD account options now to see how much more you could be earning.

Are CDs better than savings accounts?

While the benefits of either deposit vehicle are specific to the individual, it helps to know when a CD may be more advantageous. Here are three times when it could be better.

When you want a fixed rate

You may be able to find a higher APY on a high-yield savings account than a CD, but it may not stay higher for very long. That's because interest rates on savings accounts are adjustable while interest rates for CDs are fixed. Interest rates on CDs are in the 3.5% to 4.5% range or higher, making them a smart place to park your money now.

While you may be able to secure a similar rate for a savings account, that interest will be affected by the larger economy, Fed activity and more. CDs, however, are locked in at the rate you opened the account with - regardless of what happens to the rate environment during your term. So if you want to grow your money at a predictable rate, a CD may be better for you than a savings account.

Explore your CD options here to learn more.

When you want to leave your money untouched

High-yield savings accounts operate similarly to regular savings accounts in the sense that they can be added to or withdrawn from easily via an ATM card. While this flexibility may be desirable for some, it can also be a detriment for others. Easy access means a higher likelihood of withdrawals, giving your funds little chance to grow.

A CD, on the other hand, locks away your money for the full term of the account (which could be months or even years). You won't be able to touch the money without paying an early withdrawal penalty and, possibly, other fees. That can encourage you to leave your money untouched. Set and forget your CD account and rest assured knowing it won't be subject to constant withdrawals - and it'll grow at a favorable rate, too.

When you're planning for the future

A CD is relatively easy to open and operate. It can also inject some predictability into your finances by offering you a clear way to plan for the future. By knowing the fixed interest rate and the expiration date for your CD, it will be easier to plan for its eventual use. 

For example, if you put $5,000 into a CD with a 3.5% interest rate, you know you would have $5,175.00 after one year. Compare that to a high-yield savings account you may withdraw from throughout the year. And even if you left the principle alone, there's no way to accurately predict where the interest rate on the savings account will go throughout the year. 

So, in short, if you want to be able to rely on steady returns, a CD may be better for you than a saving account. 

The bottom line

Everyone's financial situation and goals are different. Some people may find a high-yield savings account works well for them, while others may prefer a CD. If you're someone who wants a fixed interest rate and is comfortable leaving their money untouched, a CD may be preferable for you. It can also offer you an easy way to plan for the future since you'll know exactly how much money you'll be left with when your CD term ends.

Ready to get started? Explore your CD options online now and start earning more money.

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