CD vs. High Interest Savings Account

High interest or high yield savings accounts are savings accounts that pay a higher interest rate than ordinary savings or checking accounts. How much more depends on the bank. Like a traditional savings account, all of your money is available to you at any time without penalty.

Liquidity at a price

The advantage a high yield or high interest savings account has over a CD is its liquidity. However, that liquidity comes at a price, a lower interest rate. While the rates on these accounts are higher than an ordinary day-to-day savings account, they are lower CD interest rates.

Virtually all high interest savings accounts are only available through online banks. These banks are able to offer higher interest rates than traditional brick and mortar banks because they have lower operating expenses. Online banks, like traditional banks, are FDIC insured. The disadvantage of a high interest savings account with an online bank is that it can take several days to a week to receive your money when you request a withdrawal.

How do the rates compare

It is important to comparison shop your options and choose the one that works best for you. If you think you will need some or all of your money in the near future, consider a high-interest savings account.

If you think you will need immediate access to small amounts of your money on a regular basis, consider a traditional savings account. If you're looking for a place for your emergency fund, a CD may be your best option.