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3 times a savings account may be better than a CD

If you know you'll need regular access to your money, then a high-yield savings account may be better for you. Getty Images

In today's high interest-rate environment there aren't many benefits that consumers can take advantage of. Rates are substantially higher for homebuyers and owners looking to refinance. They've also increased on personal loans and credit cards, making borrowing with those two credit types significantly more expensive than it was just a few years ago.

That said, the silver lining for higher interest rates is the money savers can now earn with high-yield savings and certificates of deposit (CD) accounts. Interest rates on these accounts are exponentially higher than they had been — and higher still than the rates earned with a regular savings account. To earn the most interest, however, depositors should first familiarize themselves with both savings vehicles and the nuances of each. Specifically, it helps to know when a savings account may be better than a CD and vice versa

Start by exploring your savings account options here to see how much more money you could be earning.

3 times a savings account may be better than a CD

Here are three scenarios in which a high-yield savings account may be better than a CD.

When you need access to the funds

A CD is a great option for many people as it comes with high interest rates that will be locked in regardless of any volatility in the larger rate environment. But, again, they'll be locked in. To earn the full interest amount on a CD you'll need to keep your funds in the account for the full designated term. If you withdraw it early you could be penalized, which usually comes in the form of the interest you've earned to date, although each lender has different terms and policies. 

If you want the high interest rate but still want the freedom to make deposits and withdrawals, a CD may not be best for you. In these circumstances, you'll be better served by opening a high-yield savings account. High-yield savings accounts are also safe, but they'll allow you to continue your banking as usual, without the restrictions that a CD comes with. 

Explore your high-yield savings options and start earning more money now!

When you think rates may go higher

One positive feature of CDs is that the rate is locked in regardless of any negative rate activity during its term. So, for example, if you open a CD with a 4% interest rate it will be honored throughout the term, even if rates fall below that mark. But what happens if rates go higher? In these cases, you'll lose the interest you could have gotten by putting your money into a high-yield savings account instead. This is a real concern in today's economy where rates have been increased 10 times since March 2022 — and they could be heading higher with the Fed's next meeting later in June. 

Interest rates on high-yield savings accounts, meanwhile, are variable. If you open your account with a 3% rate but Fed rate increases encourage your bank to move them higher, you'll automatically start earning interest at the new, higher rate. So, if you think rates are going to continue to move upward, you may be better served by moving your money into a high-yield account versus getting stuck with the lower rate with a CD.

When you're comfortable using an online bank

If you want the very best interest rate on your high-yield savings account then consider looking for an online bank. Online banks don't have the expenses and overhead that banks with physical branches have. In turn, they have more savings available, which they typically offer to savers in the form of higher interest rates. But you'll need to be comfortable using an online bank to secure this rate. That may mean making deposits and withdrawals from a bank with a physical location and then transferring the funds electronically to your high-yield account. But if you're comfortable using an online bank then the interest rate you can secure by doing so may be worth it compared to what you can get with a CD at an in-person bank or credit union.

You can check your online high-yield savings account options here now.

The bottom line

CDs and high-yield savings accounts both have attractive features for savers in today's rate environment. Depending on your preference, however, a high-yield account may be the better choice. This is especially true if you know you'll need access to the funds that you deposit or if you think rates are likely to continue to rise in the near future. Similarly, if the interest rate is your key motivator — and you're comfortable using an online bank to secure that rate — a high-yield savings account may be better for you than a CD.

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