Forget CDs. Here's Why I Doubled Down on Funding My High-Yield Savings Account Instead

A certificate of deposit (CD) can be an excellent savings vehicle if you have extra cash on hand. They're FDIC insured up to $250,000 per depositor, per FDIC-insured bank, per ownership category, meaning you can tuck away a lot of money without worry. And even better, you can earn interest on your cash while it sits, allowing you to make money without lifting a finger.

CDs have been a hot topic lately due to the unusually high CD rates we've been seeing. Right now, you can get close to 5% interest on a variety of CDs from different issuers. While that's a great interest rate for such a safe investment, I'm still not opening a CD. Instead, I recently put more money into my high-yield savings account (HYSA) instead. Here's why.

HYSA rates are still competitive

You know how I said the best CD rates are up near 5% right now? Well, so are the best rates on savings accounts. Rates on both account types have been high the last several years due to moves by the Federal Reserve.

To curb rising inflation caused by the COVID-19 pandemic, the Fed made a series of increases to the federal funds rate. That led to interest rates reaching a 23-year high. As a result, banking products like CDs and HYSAs have been paying out generously.

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.

One benefit of CDs over savings accounts is that the interest rate you lock in at the start of the CD term is the interest rate you'll get for the entire length of the CD. Rates on savings accounts, on the other hand, can fluctuate depending on economic conditions. But for the last several years, HYSAs have been offering excellent interest rates, and they continue to do so for the time being.

Flexibility is important

Perhaps one of the biggest downsides of CDs is that your cash is locked up once you open the account. You can't pull out some or all of it if an emergency expense pops up, unless you want to risk paying a penalty fee.

Savings accounts don't have that kind of restriction. You can access your money whenever you want to, provided your bank doesn't set a restriction on the number of withdrawals you can make each month. I appreciate having that flexibility if I need it because the majority of the cash in my HYSA is for my emergency fund.

If my furnace suddenly gives out or my car needs an unexpected repair, I'd be able to access the cash to cover the expense without worry. But if these funds were tied up in a CD, I'd have to weigh whether it was worth paying the penalty to break the CD early to access my money. I'd rather not have to make that decision if something goes wrong in the future.

Taking advantage of sub-accounts

My high-yield savings account has a feature where I can create sub-accounts to separate my savings for different goals. I just took advantage of this for the first time and created a savings bucket to hold my quarterly income taxes.

As a freelancer, I don't get taxes taken out of a regular paycheck, so I have to pay them each quarter. It's a bit of a punch to the gut each time when I see how much I owe, but this recent move takes a little bit of the sting out of it. By setting the funds aside for my quarterly tax payments early, I can earn interest on that cash while it waits. It's almost like my bank is paying a small portion of my taxes for me.

When compared to CDs, high-yield savings accounts offer similar interest rates (at least for now) and more flexibility. There's no one right financial path for everyone, and CDs can be a great choice for many people. It's important that you consider all the pros and cons when deciding what to do with your money. But for me, at this time in my life, I'd rather stick with my HYSA.