CD Vs. Savings Account: Which Is The Better Option For You?

Jun 30, 2017 | 4 Comments

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As with any type of bank account, the trade-off between a CD and a savings account involves the rate and accessibility of the funds. So in the match CDs vs. savings accounts, which comes out on top?

What Are The Benefits of A Savings Account?

In general, a savings account provides easy access to funds. The main downside is that you earn very minimal yields from savings account. Different institutions provide various ways to access the funds. You need to determine if it is easy to withdraw the funds from your bank before opening the account.

What is The Difference Between Certificates of Deposit & Savings Accounts?

A CD limits your access to your funds and provides higher interest yields in return for the loss of fund mobility. If you need to withdraw your money before the maturity date, you may incur penalty charges. There are also certain banks that won’t allow you to access your funds before maturity. A good way to get around this is to “ladder” your CDs so certain amounts mature more quickly than others.

It is recommended to invest in a CD only money you know you will not need in the near future. In addition, it is important to determine if the extra interest is worth locking your money in this investment for a certain time frame. Depending on the length of your investment, the bank might offer different rates. The Federal Deposit Insurance Corporation (FDIC) insures CDs, just like it does savings accounts. In the event that your bank collapses, you will enjoy a certain level of protection from the government.

CD Vs. Savings Account: Which Should You Invest In?

Both options allow you to enjoy compounded interest. Essentially, the interest you earn is added to the account. The next interest payment you receive comes from the principal and the interest yield from the previous month. As was mentioned earlier, the two main considerations include the interest rate and the ease of access to the funds.

In general, you should invest in CD if you have a certain amount of money you will not need in the foreseeable future. Investing in CDs is better, in terms of monetary compensation, simply because of the higher yield it provides. At the same time, savings accounts can also be considered as a good alternative for individuals who need quick access to their funds in the foreseeable future. Ultimately, it is up to you to determine whether a CD vs. a savings account is better for your unique circumstance.

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unitof
Monday, 16 Jul 2012 5:38 PM
<p>Coolness, that makes sense. Thanks!</p>
SimonMBT
Monday, 16 Jul 2012 5:36 PM
<p>The CD offers no strict financial benefit compared to the savings account. However, because CDs require that you not touch the funds, it can be considered an easier test of willpower to not spend it. For example, the CD could be designated for a trip in 3 months -- in the savings account, you may have spent it before the trip. </p>
unitof
Monday, 16 Jul 2012 5:29 PM
<p>Is there any advantage to a CD over a savings account if the savings has a higher APY? For example, here are Ally's current rates that I just looked up:</p><p>3-month CD APY: 0.34%<br>Online Savings (no time contraint): 0.84%</p><p>I guess I would just like to understand what, if any, benefit the CD offers that the savings doesn't. Is there any reason to go with CD over the savings?</p>
401kpenalty
Tuesday, 02 Mar 2010 7:17 AM
<p>Saving accounts provide ready access to the accounts while the certificate of deposit limit is more like a long term deposits. Interests that generate of CD accounts are more in terms of proportion and become mature after a specific duration while that of the saving accounts mature earlier with low profit proportion.</p>