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Savings accounts vs. CDs: Which earns more interest?

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Some high-yield savings accounts today earn around 4.5% APY with flexible account terms and no fees. Getty Images

Whether you're saving for your emergency fund or an upcoming large purchase, choosing the right high-yield account can make all the difference.

Two popular options available for savers today are high-yield savings accounts and certificates of deposit (CDs). Though these accounts can be very different, they're both among the top interest-earning account types today — especially compared to regular savings accounts, which sometimes offer near-zero rates.

If you're looking to maximize your interest earnings, there are things you should know to help decide between a high-yield savings account or CD today.

Compare today's savings rates here to see how much more you could be earning.

Savings account rates vs. CD rates today

Following a series of 10 rate hikes by the Federal Reserve over more than a year now is a great time to score a fantastic rate on your savings

Some of the best high-yield savings rates are around 4.00% to 4.50%, though some are approaching 5.00% today. CD rates can vary by term, but you'll find the highest APYs today on 6-month to 1-year CDs. The best options range from around 4.50% to 5.00% APY, with some top-earning CDs offering as much as 5.10% or 5.20%.

Though they're similar, there are a couple of reasons CDs offer slightly higher rates. One is that you are required to lock your money in the account for the entire term or face a penalty fee for withdrawal. The other factor is the type of interest. CDs carry fixed interest rates, which means the rate you lock in today will not change over the entire term. However, high-yield savings account rates are variable and can change over time, even after you open your account.

When you can earn more with a savings account

Given the differences between these account types, there are different scenarios in which you can earn more using one type over the other. Despite their rates being slightly lower than CDs right now, here are a few cases when you can earn more with a high-yield savings account. 

When interest rates are rising

The overall interest rate environment can have a big effect on whether a fixed or variable interest rate is better. When interest rates are on the rise, it makes a lot of sense to choose a high-yield savings account that will increase its APY alongside. 

"Think about all the CD's that were locked in for two, three, even five years at the near-zero rates we were at and all the people now kicking themselves because they could be getting 4% or more in a savings account without any lock," says Paul Monax, CFP, founder of Agile Wealth. If you had instead opened a high-yield savings account a few years ago when some of the highest rates were just 0.50%, you could be taking advantage of rates above 4% today without having to move your funds anywhere.

Start saving with one of the top savings accounts available today.

When you might need to access your money on short notice

Not having to lock in your deposit with a high-yield savings account can have another benefit for your earnings. If you need to access your money in case of an emergency or for an unexpected expense, you can withdraw as much as you need and keep earning interest on the remainder. 

With a CD, the penalty fee you'll face for early withdrawal can significantly cut into your interest earnings. Plus, some accounts require you to take out all your money if you're going to make an early withdrawal — meaning you'll also forfeit any potential future interest.

When you want to make contributions

If you only have a small amount of money to deposit into a CD, you may not get the full benefit of its high rate. CDs generally don't allow you to make contributions to your balance, so the amount you deposit at the opening is the amount you'll earn interest on over the entire term. 

By contrast, you can make contributions to your high-yield savings account whenever you want. So if you're working on building your savings, you can increase the amount you earn interest on over time by adding more to your principal balance.

When you can earn more with a CD

Of course, there are also times when a CD can make more sense if you want to earn the most interest. Here are some to consider:

When interest rates could fall

Just like variable interest is good when rates rise, fixed interest is one of the best ways to save when rates are likely to fall.

Say you lock in a long-term CD rate around 5% APY today, and two years from now, interest rates are back down. While new fixed-rate CDs and variable-rate savings accounts at that time will earn less, you can still benefit from today's maximum rates for years to come.

When you have a specific timeline

Another time it can benefit you to lock in one of today's high CD rates is if you have a specific goal for your money and know you can agree to the entire term. 

This allows you to lock in today's high rates with the money you've already saved, knowing you don't have to worry about any early withdrawal penalties or not having a high enough starting balance. Plus, you can avoid any temptation to spend the money on impulse purchases that aren't your original savings goal. 

And once your term ends, you'll not only have your original balance saved but you can put the interest you've earned toward a new goal.

Compare today's top CD rates now.

The bottom line

Both high-yield savings accounts and CDs can help you boost your savings balance in today's high interest rate environment. Both generally earn between 4% and 5% APY — which can lead to significant earnings on your balance over time. Although some types of CDs can earn you slightly higher rates right now, you should consider whether a CD is the account type that will net you the most interest over time. Knowing the differences in variable and fixed interest, withdrawal limitations and more can help you choose the best savings account for your financial goals.

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