Forget CDs. Even With Falling Rates, a Savings Account Is a Better Choice

The Federal Reserve has finally decided to take the U.S. economy into a cycle of rate cuts. On Sept. 18, it elected to cut its benchmark interest rate by a whopping half percentage point, and many consumer interest rates tend to move along with the federal funds rate.

This is especially true of rates on accounts like savings, CDs, and money market accounts. You might have already noticed rates falling on these, and wondered whether you should rush to lock up your savings in a CD (which has a fixed rate, as opposed to the variable rates of savings accounts). For most people, the answer is no.

Here's why a humble high-yield savings account (HYSA) is typically the better option for your cash.

Savings accounts are accessible

The first reason to opt for a savings account over a CD is their approachability and accessibility. Click here to open one of the best high-yield savings accounts for as little as $0 -- and start earning interest on your savings.

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.

CDs, on the other hand, often have a higher minimum opening deposit -- some of the best CDs require you to deposit $500 or as much as $2,500 or more to open the account. This can be a problem if you're new to CDs or to saving money in general, especially if the best rate you can find for a given CD term is with a bank that has a high deposit requirement you can't meet.

Savings accounts keep your cash liquid

Savings accounts are also an excellent place to keep your emergency fund and other money you'll need sooner rather than later. You might be limited in how many withdrawals you can make in any given month, thanks to old rules under Regulation D, but even if you can't withdraw more often than six or 10 times a month, that's not likely to be a problem most months. But if your emergency fund is in a CD, you'll have to pay an early withdrawal penalty to access it.

Getting your cash out of an online HYSA will likely involve an extra step (namely, sending money to a linked account you can withdraw from), but it doesn't need to be an onerous one.

I wanted the option to access my savings via a debit card and ATM withdrawals, so I opened a checking account with the same online bank. Now I can withdraw from savings just by signing into my account on the bank's website or mobile app and transferring it from savings to checking.

CDs are better for these circumstances

So why bother with CDs at all then? Should you just forget they exist? Definitely not! CDs can be part of your financial picture, but they are best suited to specific circumstances.

Let's say you've got $10,000 you intend to use as a car down payment a year from now. One year is not enough time to make investing that $10,000 in the stock market a good idea -- there's too much risk of loss in stocks over the short term.

But you could put your $10,000 into a 1-year CD now and lock in a rate of, say, 4%. You'll earn more than $400 on your money, and if you open your CD with an FDIC-insured bank, you won't be at risk of losing it to bank failure.

Retirees should consider CDs, too, because they can help keep inflation from eroding the value of cash. If you're hoping to generate regular income (from interest payouts) and ensure shorter-term savings have a locked-in interest rate, CDs can be a great tool to achieve that.

Stick with savings

Yes, rates on savings accounts are now falling -- my own high-yield savings account just dropped to 4.00% from 4.20%. It's a bummer. But I'm still hanging onto that account. It's where I keep my emergency fund, tax payments, and money for short-term goals, like travel.

If you don't have a high-yield savings account yet, you definitely should. Even after the federal funds rate falls further, a HYSA will still be worth it.