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CDs vs. high-yield savings accounts: What to consider this February

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Both CDs and high-yield savings accounts offer savers unique ways to grow their money right now. Getty Images

News at the end of January that the Federal Reserve was keeping its federal funds rate unchanged may have not been a surprise, but it was still a disappointment for many borrowers. An elevated federal funds rate means that interest rates will stay high for a wide range of products ranging from mortgages to personal loans to credit cards. For savers, however, this pause presents an extended opportunity to take advantage of today's rate environment via high-rate savings vehicles.

Two of the best ways to do so this February are via certificates of deposit (CD) and high-yield savings accounts. While interest rates on both are still relatively high, these accounts operate differently, each coming with a unique set of pros and cons that savers should consider before getting started, particularly in today's rate climate. Below, we'll break down what to contemplate this month.

Start by seeing how much more you could be earning with a top CD account here.

CDs vs. high-yield savings accounts: What to consider this February

CDs and high-yield savings accounts aren't quite as profitable as they were this time last year. But since rates on both are readily available in the 4% range, approximately, they're still generally a smart place to keep your money. Here's what to consider before opening either account this month:

A variable rate vs. a fixed one: High-yield savings accounts have variable interest rates that will rise or fall depending on the broader rate climate. CDs have fixed interest rates that will remain the same for the full CD term, regardless of what happens to rates during that time. Both can be advantageous for savers now, but they'll need to be carefully evaluated this February, minus a scheduled Federal Reserve meeting that could impact the overall rate climate. For some, a fixed CD rate makes sense, while others could benefit from a variable rate, should rate hikes be back as a consideration later this year. So review both carefully to determine which is more advantageous for you this month.

See what high-yield savings account interest rate you could secure now.

Your access needs: If you feel comfortable parting with a portion of your money for an extended period, then a CD can be valuable for you now since the rates there are fixed and predictable. But if you want or need to maintain access to your money and still want to earn a better return than the minimal 0.41% currently available with traditional savings accounts, then a high-yield savings account may be better. Determine your access needs both in February and over the next few months to help decide on which is best for you now. And, in some circumstances, you may be better off splitting your funds between both account types.

Your long-term goals: What are you trying to achieve by opening a savings account this month? If you want to take advantage of this moment in time, then locking in a high, long-term CD rate is arguably the best way to do so. But if you just want to earn a few extra dollars on your money and don't want to give up access to it in case of an emergency, then a high-yield savings account may be better for you now. To optimize either account offering, however, first consider your long-term goals, especially this month as rates are expected to remain relatively steady. This gives you a bit more time for consideration compared to the months in which the Fed took rate-cutting action.

The bottom line

This February offers a unique moment for savers to revisit their account options. With interest rates paused at the end of January and no threat of an immediate reduction in February, savers can take their time in evaluating their CD and high-yield savings account options. By considering the above three factors and being realistic about the future of the interest rate climate this year, savers can better position their money for greater interest-earning potential both in February and, hopefully, for multiple months to come.

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