Why banks pay more for CDs vs. high-yield savings: What smart savers should know

Putting money into certificates of deposit (CDs) or high-yield savings accounts (HYSAs) are both savvy savings strategies, but there are subtle differences between the two that could impact your overall returns and financial liquidity. The annual percentage yield (APY) is a key metric for comparing CDs and high-yield savings accounts, as it reflects the total interest earned over a year.

Both savings products offer some of the highest interest rates available from banks and credit unions, and they also come with minimal risk since they are federally insured by a government agency such as the Federal Deposit Insurance Corporation (FDIC). Let’s take a closer look at each to help you determine which product best aligns with your financial goals and savings strategies.

Core differences between CDs and high-yield savings accounts

With a little internet sleuthing, you can find exceptional interest rates on both savings products, but it’s important to understand the main differences between the two. Market conditions influence these interest rates and can vary depending on the competitive rates offered by different financial institutions.

What is a certificate of deposit?

The majority of traditional and online banks offer customers certificates of deposit (they are called share certificates at credit unions), making them one of the most common savings products available.

Perhaps the best way to understand CDs is to think of them as fixed-term deposits. You deposit a certain amount of funds for a fixed length of time, known as the set period, during which the funds must remain in the account. Your financial institution agrees to pay you a predetermined amount of interest based on a fixed rate, which remains constant throughout the set period. Terms can range from as few as 14 days to as long as seven or more years, depending on the terms your bank or credit union offers. To open a CD, you typically need to make an initial minimum deposit, which varies by institution.

When your CD reaches the end of its term, which is called the CD’s maturity date, you can choose to roll the funds over into another CD or cash out. You can’t get your cash out of your certificate before it matures without incurring an early withdrawal penalty, as early withdrawals from a CD usually result in penalties, which can limit your liquidity if you have a pressing need to access cash.

What is a high-yield savings account?

Think of high-yield savings accounts as a max-level savings account – you’ll get a significantly higher interest rate with a high-yield account than with a traditional savings account. According to the FDIC, the national average on traditional savings accounts was a paltry .39% in August of 2025. Conversely, savers can find a number of financial institutions offering rates at or above 4% for high-yield savings accounts. Savings account rates can fluctuate over time, and are often higher at online only banks due to their lower overhead costs.

Unlike CDs, where you can’t take out money without incurring a penalty, you can withdraw money or deposit more money into a high-yield savings account at any time. This provides easy access to your funds, making it simple to add more money or withdraw money as needed. These accounts usually have monthly transaction limits, though, as well as minimum balance requirements, especially to get the highest interest rate offered. Some high-yield savings accounts may also charge a monthly fee if you don’t meet the minimum balance requirements. Lastly, you’ll get a variable interest rate, so your rate could drop if federal interest rates tumble.

CDs and high-yield savings accounts are insured by the FDIC up to $250,000, or $500,000 if purchased jointly by two adults, so they are considered nearly risk-free investments.

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3 reasons why financial institutions offer higher interest rates for certificates of deposit accounts

Banks treat funds invested in certificates of deposit differently from funds deposited into HYSAs. Both CDs and high-yield savings accounts are types of deposit accounts and bank deposit accounts. Interest rates on these savings products are based on the benchmark interest rate set by the Federal Reserve, but they are applied differently for a number of reasons.

1. Stable source of long-term funding. Money invested in CDs provides financial institutions with a stable source of funding that they can use to generate a variety of loans to members. Auto, home, and personal loans generate additional income from interest and loan fees for banks and credit unions. Financial institutions typically incentivize CD deposits by offering their highest interest rates.
2. Pre-determined holding periods reduce risk and liquidity needs. With a high-yield savings account, you could deposit $10,000 and take it out penalty-free the following week. With a CD, you agree to leave your money untouched for a predetermined length of time, which gives financial institutions greater assurance that funds invested in CDs will remain available for long-term lending and increased liquidity. This is a key difference between various deposit accounts, including bank deposit accounts, and other investment products.
3. Fixed-term deposits offer enhanced planning and fiscal strategy. Banks that have a high volume of deposits in fixed-term certificates are better able to fund a greater amount of loans and forecast their long-term strategies. CDs can also play an important role in an individual’s broader financial strategy, providing a secure and predictable way to grow savings as part of overall financial planning.

These are the primary reasons why financial institutions are motivated to reward customers with the highest interest rates on CDs versus other savings products.

What’s the best choice: CDs or high-yield savings accounts?

The right answer to which one is better depends on your savings goals, liquidity, timelines, age, and other factors. Both certificates of deposit and high-yield savings accounts are designed to help individuals save money securely within a bank account, offering financial support and low risk for savers.

CDs: Higher rates, less flexibility

You’ll usually get slightly more yield by investing in a certificate of deposit than a high-yield savings account. Even if interest rates on both savings products are equal, say 4%, there are several reasons why CDs might not be the right choice to meet short-term savings goals.

You won’t be able to access your funds without incurring an early withdrawal penalty, which impacts liquidity and yield. Withdrawing money from a CD before the maturity date can result in penalties, and in some cases, you could lose money if you sell a brokered CD before maturity. Holding a CD to maturity ensures you receive the full interest, but selling before maturity could result in a substantial gain or loss depending on market conditions. Interest rates on 30-day, 3, 6, and 9-month short-term CDs might not be as high as a high-yield savings account since banks tend to offer their best rates on slightly longer-term CDs. A HYSA, meanwhile, allows you to capture high yield right off the bat, regardless of how long you plan to park your money.

HYSAs: More access, but rate uncertainty

High-yield savings accounts allow you to make a limited number of transactions each month, so you’ll be able to tap into your savings if necessary. This makes them ideal for covering an unexpected expense, as you can quickly access your funds without penalties. You can deposit money at any time and continue to earn interest on your balance, helping your savings grow even as you manage your financial needs. What you gain in access you may lose in overall yield if interest rates drop since your variable rate could fall with any cuts to the federal interest rate.

Risk and FDIC insurance

Certificates of deposit and high-yield savings accounts are both FDIC insured up to $250,000 per depositor, per bank, for each account ownership category, making these bank deposit accounts essentially risk-free investments if your balances are below that threshold. FDIC insurance increases to $500,000 for joint account holders, as each co-owner is insured separately. If you open an account at a credit union, your deposits are insured by the National Credit Union Administration (NCUA), which is another government agency. Both the FDIC and NCUA provide financial support and protection for your deposits, ensuring the safety of your funds within the insured limits.

Minimum balance and fee structures

Traditional banks and credit unions often require savers to invest a minimum of $500, $1,000 or $2,500 as an initial deposit to open a CD. Some banks require even higher initial deposits of $5,000 or $10,000. There are no ongoing maintenance fees with CDs, though. With a HYSA, you may be required to keep a predetermined minimum balance in your account to get the highest interest rate offered. Monthly maintenance and transaction fees for high-yield savings accounts are often waived or are nominal at many financial institutions in order to gain and retain customers.

Compared to CDs and high-yield savings accounts, regular savings accounts and money market accounts typically have lower minimum balance and initial deposit requirements, but may offer lower interest rates. Money market accounts also combine features of savings and checking accounts, such as accessibility through debit cards, but may have transaction limitations.

When to choose CDs vs. high-yield savings accounts

CDs and high-yield savings accounts are both types of deposit accounts and bank accounts, offering dependable, reliable, and simple set-it-and-forget-it savings strategies. In some instances, though, there may be compelling reasons to choose a high-yield savings account vs. CDs.

When considering account flexibility, it’s important to note that checking accounts and money market accounts provide easier access to funds, with features like check-writing privileges and debit cards, compared to CDs and high-yield savings accounts.

For managing uninvested cash, a cash management account or a brokerage account can be attractive alternatives. These accounts often combine features of savings, spending, and cash management, and may offer checkwriting, debit cards, and ATM reimbursements. Balances in these accounts are typically held at program banks, which provide FDIC insurance coverage and help protect your funds.

The benefits of saving are enhanced by compound interest and interest earnings, which can help your savings grow significantly over time.

It’s important not to put all your money into a single CD or account. Diversification, such as using a CD ladder or spreading funds across different account types, is a key strategy to manage risk and maintain liquidity.

Each fund seeks to achieve different financial goals, so be sure to align your choice with your own objectives and risk tolerance.

Short-term vs. long-term savings goals

CDs can be an excellent option to meet both long- and short-term savings goals. For example, if you are saving for a down payment on a house, a CD can help you accumulate funds with a fixed interest rate over a set period. You can purchase CDs of varying terms and construct a CD “ladder” that has rolling maturity dates. Liquidity is never far out of reach with shorter-term CDs, and you can continue to tap into current high interest rates. High-yield savings accounts, or a regular savings account, might be the better option if you have extra money to put away but may need to access in the interim or for very short-term needs.

Emergency fund vs. planned purchase

CDs are illiquid – you can’t access your funds without incurring a penalty. They leave little financial wiggle room for costly emergencies or unexpected purchases. With an HYSA, however, your money is ready whenever you might need it.

Combining both types of accounts for a balanced savings strategy

Savvy savers can maximize their extra liquidity by putting money into both types of accounts. That strategy combines the flexibility of HYSAs with the dependability and guaranteed returns of certificates of deposit.

Putting it all together: Is a CD better than a high-yield savings account?

Certificates of deposit are both excellent options for savers. You’ll get some of the highest interest rates available from banks and credit unions while minimizing risk.

CDs are likely the better choice if you know you won’t need to access your money. You’ll get slightly higher yield, and by laddering your CD investments, you can have rolling maturity dates that allow you to continually reinvest your funds or cash out and invest elsewhere should rates drop.

High-yield savings accounts are a great way to maximize savings while keeping your liquidity intact. Your money will earn far more interest than if it were in a traditional savings account, and you’ll be able to use it to make large or emergency purchases, if necessary.

Is your money stuck in a traditional savings account? Speak to a banker at your financial institution to better understand the difference between high-yield savings and CDs and take the first step toward meeting your savings goals.