CD vs. Savings Account: Which Should I Choose?

Photo illustration to accompany article comparing CDs and savings accounts Getty Images

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At this time last year, you could get an online savings account with an annual yield of over 2.00%.

Now that same account’s return is likely cut in half, hovering around 1.00%.

Even still, it might be your best bet right now. 

A week into the COVID-19 pandemic that shut down the world, the Federal Reserve pushed the emergency button. The Fed slashed interest rates to near zero in a surprise move on March 15, ushering in a rate drop across the nation. 

The change caused interest rates on high-yield bank accounts to drop, a trend that continued into the summer. 

With the U.S. officially in a recession, and with the earnings power of bank accounts greatly reduced, many experts say that online savings accounts are still a better option for most savers than CDs, or certificates of deposit.  

Finding the right balance between earnings and liquidity can save you some headaches down the road. Read on for our assessment of savings accounts and CDs in this low-rate environment.

Savings Account

Savings accounts are the MVPs of bank accounts. Along with checking accounts, they are an essential part of a solid personal finance plan. They’re also a foundation upon which you can expand to other bank and investments accounts later on. 

So when we ask the question “savings account or CD?” it’s posed with the understanding that, even outside the current rate environment, savings accounts should hold your emergency savings and other cash you may need immediate access to — whether it’s $100 or $10,000. 

Every bit counts, especially with high-yield savings accounts that offer exponentially more earning potential in the form of interest than conventional brick-and-mortar bank saving accounts. “Emergency funds should be in a savings account, preferably a high-yield savings account,” says Ally-Jane Ayers, co-founder of New York financial planning firm Brooklyn Fi. “Something you can access quickly and easily is important.”

Brent Weiss, chief evangelist of Facet Wealth, a financial planning firm in Baltimore, agreed. “These accounts are great for your emergency fund, a house down payment, a new car down payment, a house maintenance fund or anything else that is larger in size and planned for the next two to five years.”

Though savings accounts are subject to a six-monthly-transaction limit, they do offer liquidity that other investment accounts (including CDs) do not. If you need to pull funds out of your emergency savings — to cover, say, a car repair or lost income from being unemployed — you won’t be penalized for withdrawing money (barring any minimum balance requirements).

When choosing a high-yield savings account, look for a bank that does not charge monthly maintenance fee or any minimum balance requirements that you won’t be able to meet.


In times when interest rates are higher and more competitive, CDs offer higher interest rates in exchange for locking money with your bank for a fixed period of time. This can be valuable for savings goals that may have a date attached, such as future college tuition or saving for a house. 

CDs come in many varieties, but the main thing to know is they come with a term length (ranging between 6 months and 10 years) — the longer the term, the higher the rate. If you withdraw funds early, you typically have to pay a penalty which can eat into the interest accrued and even the principal, depending on when the maturity date of the CD is and other account terms.

However, when savings account rates are low, as they have been this year, CD rates can drop even lower in some instances. An online bank may have a high-yield savings account right now with an APY of 1.00%, while its five-year CD may top out at 1.15%. With a long-term interest rate so low, it raises the question: are CDs even worth it?

Ayers doesn’t think so. “At this point, I don’t see CDs as part of the financial plan at this moment, where we are with interest rates. You’re going to do better in a high-yield savings account. Even if you’re looking long-term, the rates are just not as competitive. At this moment, I’m not recommending them” she says.

You might choose a CD if you don’t need the money for the foreseeable future and you want to hedge against future rate drops, by locking in the current-best rate. If you currently have a CD, then it’s best to not mess with it right now, says Ayers. “Stay the term. When it expires, do some shopping and see if your CD rates are going to be as good as a high-yield savings account.”

Ultimately, whether you save in a savings account or CD depends on how much you value the potential benefits versus the potential drawbacks (i.e., losing easy access to your savings with a CD). It’s best to do the math for yourself to see how much you stand to gain from opening up a new account or adding to an existing one. You may find a 0.15% difference in rates may not warrant much in earnings after all.