CDs vs. Savings Accounts: Which Is Better Now That Rates Are Falling?

The rates on savings accounts and CDs have been extraordinary recently. In fact, even as rates start to fall, there are still some super strong offers. You can find top high-yield savings accounts and CDs with APYs of 4% or even 5%.

However, the Fed rate cuts mean the economic tides are shifting and the savings party is coming to an end. It's time to decide if there are any accounts you want to ask for one final dance. 

That means understanding the differences between CDs and savings accounts so you can decide which is right for you.

CDs vs. savings accounts: It's all about flexibility

The biggest difference between CDs and savings accounts is flexibility -- in terms of rates and accessibility. 

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.80% Rate info 3.80% annual percentage yield as of December 28, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

The money you put into a savings account is easily accessible, but savings APYs are variable. You're not locking your money away, but you're also not locking in a high APY either. It's easy to make withdrawals, but the rate can and will change. 

On the other hand, when you put money into a CD, you commit to leaving it there until the CD matures. (With most CDs, you'll pay a penalty to make an early withdrawal.) At the same time, the rate is fixed for the whole CD term. It's difficult to withdraw money, but that CD rate is fixed and won't change.

Discover® Bank has competitive rates on both CDs and savings accounts. It only takes a couple of minutes to open an account and Discover won't ding you with a bunch of hidden fees. Click here to learn more about its low-fee commitment and open a Discover® Online Savings account.

How high interest rates have turned common wisdom on its head

Common wisdom used to say that CD rates were higher than those on savings accounts. You'd also get a higher APY if you committed to longer CD terms. Banks were essentially rewarding customers for tying up their money -- and the longer the better.

But high interest rates have turned everything upside down. Right now, it's high-yield savings accounts that are paying the highest APYs. Not only that, but you can get better rates on shorter CDs than longer ones. 

This is because the Fed is expected to continue to cut rates, albeit gradually. As rates fall, banks will reduce their savings APYs. But they can't change the rates they've promised on existing CDs. 

Banks don't mind paying high APYs on savings accounts with variable rates. But they don't want to be stuck paying an APY of, say, 5% on a 5-year CD in a couple of years when rates have dropped considerably. 

Which is better? CDs or savings accounts?

So, do you go for a savings account with the highest possible APY today? Or get the highest possible CD rate before rates fall even further? There's certainly an argument for locking in high CD rates. It's like stretching your last drink at the bar out to make the party go just a bit longer. 

Let's say you put $5,000 into a 5-year CD with an APY of 3.9% today. You could earn over $1,000 in interest over the CD term. In contrast, while you can earn over 5% on a top savings account right now, you won't get that extra 1.1% in interest for the whole five years. There's a good chance the Fed will cut rates by as much as 2 percentage points in the next year or two. As such, you'd almost certainly earn more interest on the CD. 

While I'm always a fan of maximizing interest payments, there are other factors to consider. Most importantly, when might you need to access the cash? There's no point earning a couple of hundred extra dollars if you can't withdraw your money when you need it. 

Don't get too distracted by falling rates. Generally speaking:

• Savings accounts are better when: You're looking for somewhere to park cash you might need to access quickly, such as your emergency savings. 
• CDs are better when: You've got cash you're saving for a particular short- or medium-term goal, such as a vacation or deposit on a house. 
• Investment accounts are better when: You have money you're willing to take a little more risk with in exchange for higher potential rewards. Ideally, we're talking about cash you won't need for five to 10 years or more.

Key takeaway

When it comes to financial products, there's rarely one that's always better. Certain products will be better suited to different situations and plans. Right now, CDs have a "last chance" feel to them. It's true that these extraordinarily high rates won't last forever. But it's a bit like shopping during a sale. It's only a bargain if it's something you'll use.