Here's Why I'll Choose CDs Over Savings Accounts in 2024

Certificates of deposit (CDs) and high-yield savings accounts are two great places to park your savings in 2024. Both accounts carry FDIC insurance, generally have no account fees, and can boast some of the highest APYs on the market. With the best of both paying out at rates of about 5%, you're likely going to be earning interest at a competitive rate, no matter which one you choose.

That said, I think CDs have some major advantages over savings accounts right now, especially with the likelihood that APYs will fall at some point in the future. If you're trying to decide between these two popular bank accounts, here's why I'm leaning toward CDs.

CDs can freeze today's high rates

Both CDs and savings accounts come with annual percentage yields (APYs), which is how much interest you'll earn in a year. Although in the past the best CDs had higher APYs than the best savings accounts, right now they're both roughly the same.

But CD and savings account rates aren't exactly equivalent. Even if a CD has the same APY as a savings account, the CD rate is guaranteed for the length of your term, so long as you don't break your CD contract. Savings accounts, on the other hand, have variable APYs, which makes them prone to rate fluctuations in the larger market.

This gives CDs a huge advantage over savings accounts right now. Yes, both CDs and savings accounts have high APYs. But those rates aren't going to stay elevated forever. Depositing your savings in CDs, however, could mean freezing today's high rates, possibly extending them to a time when savings accounts have much lower APYs.

Of course, no one knows when rates on savings accounts and CDs will start to drop, especially since the Federal Reserve decided to keep rates the same at its last meeting in March 2024. But, as someone who watches the CD market frequently, I can tell you that banks are already starting to cut their most lucrative CD offers.

For example, at the end of February, I wrote about three CDs from TotalDirectBank: a 3-month CD with a 5.51% APY, a 6-month CD with 5.50%, and a 12-month CD with a 5.50%. It's now March 22, and those same CD terms are now 5.42%, 5.45%, and 5.35% respectively. It's a small change, to be sure, but it's a sign that banks are already starting to cut their rates ahead of any rate cut by the Fed.

No-penalty CDs also offer flexibility

I understand why some people might be hesitant to open a CD. After all, CDs have strict rules governing your withdrawals. While most let you withdraw interest you've earned, they all slap you with costly early withdrawal penalties if you try to touch your initial deposit.

No-penalty CDs, however, can give you the best of both worlds. They can lock in today's best APYs (check) plus, they can give you flexibility (double check). Most no-penalty CDs have a short no-withdrawals period, usually a couple of days, after which you can liquidate your CD account without incurring any extra fees.

Problem is, you can't make partial withdrawals from a no-penalty CD. If you want your money, you have to liquidate the entire CD account. This effectively closes your account and strips you of that high APY. It's a fail-safe mechanism, but it's definitely not as convenient as savings or checking accounts.

All told, if you have savings earmarked for long-term goals, now is a great time to deposit it in a CD. Do what's best for your personal finances -- you can even combine CDs and savings accounts -- then take a look at our list of best CDs to see how much you could earn.