Savings Account or CD: Which Is the Better Place for Your Savings Right Now?

Many see a new year as an opportunity to make important changes to their lives, including how they manage their money. If you hope to save more in 2025, you first have to decide which type of account is best for your cash.

Savings accounts and certificates of deposit (CDs) are two of the most popular options, but neither is perfect. Understanding the pros and cons of each can help you decide which will offer you the biggest benefits.

Pros and cons of savings accounts

Savings accounts help you earn interest on your savings while keeping your money accessible. You're generally able to take your cash out as needed, though some banks restrict you to six free withdrawals per statement cycle. But this is plenty for most people.

These accounts aren't as easy to get cash out of as checking accounts, but they're not too hard either. Usually, you just have to transfer the funds to a checking account. Some savings accounts these days even come with their own ATM cards.

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 27, 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 27, 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.

Interest payments vary depending on the type of account you choose. Brick-and-mortar savings accounts usually aren't anything to get excited about. Many offer just 0.01% APY. That would only earn you $0.10 on a $1,000 balance in a year.

High-yield savings accounts, on the other hand, offer APYs as high as 4.00% right now. That would pay you $40 on a $1,000 balance in a year. Check out some of our favorite high-yield savings accounts to start growing your savings faster.

The downside to savings accounts is that your interest rate isn't locked in, so it will fluctuate over time. That's a good thing in times when rates are rising. But we're currently in a falling rate environment, so you'll probably earn less over the next year than you could have over the previous one.

Pros and cons of certificates of deposit (CDs)

Certificates of deposit (CDs) lock in your interest rate for the full CD term, which can be anywhere from a few months to five or more years. This is appealing to those who want to guarantee a certain return over a given amount of time.

But these guaranteed returns come with greater limitations on access. You generally can only put funds into the CD when you first open the account and you face penalties if you take the money out before the CD term ends. These penalties are typically equal to several months of interest payments. You usually won't lose any of your principal, although it's possible if you withdraw the money shortly after opening the account.

A CD's guaranteed interest rate is an asset when rates are falling, but it can also be a huge drawback when rates are rising. You could theoretically earn more with a high-yield savings account than a CD when rates are rising because the savings account rate would go up over time.

Which account is right for you?

There are two key factors to weigh when deciding whether a savings account or a CD is a better home for your money:

• Which is more important to me: easy access or a high interest rate?
• What are bank account interest rates doing right now?

When access is key, like with your emergency fund, the choice is simple: You need a savings account. It's not worth risking the penalties with a CD even if you could earn a little bit more in interest. 

When your focus is on a high interest rate, the second question comes into play. In rising rate environments, it's still probably best to stick with savings accounts. In our current falling rate environment, CDs have greater appeal. One of these could be the right choice for you if you're comfortable locking your money away for a while.

First, decide on a term that you're comfortable with, then check out the best CD rates for that term to see which CD is right for you. Right now, short-term CDs -- those with terms of 12 months or less -- have the highest rates, but that might not be your best option.

If you plan to keep your money in CDs for years and you open a short-term CD, chances are the next CD you open will have a much lower rate. Locking in a long-term CD preserves your high interest rate for longer, even if the initial APY is a little lower.

It's also fine to split some money between several accounts. Keep your emergency fund in a savings account, throw some short-term savings in a short-term CD, and keep the rest in a long-term CD or invest it for the future. Deciding the purpose for each chunk of money can make it easier to identify the best place to put it.