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For short-term savings goals, certificates of deposit (CD) and high-yield savings accounts can both be good places to store your cash. Both types of deposit accounts have the potential to help you earn above-average interest rates. And depending on the financial institution you choose, you should be able to open safe, FDIC-insured CDs or high-yield savings accounts without much trouble.

Yet there are pros and cons to each of these savings options. So, if you’re on the fence about the best type of account to use for your financial goals, the following guide will provide some insight that could help you make a more informed decision. 

CDs vs. High-Yield Savings Accounts — The Basics

Here’s a closer look at CD and high-yield savings accounts, along with some details about what makes them different from one another (and different from standard checking and savings accounts too). 

How Does a Certificate of Deposit (CD) Work?

A certificate of deposit is a special type of deposit account you can open at most banks and credit unions. CDs may be available from traditional financial institutions and online banks and credit unions alike. 

What sets CDs apart from most other types of deposit accounts (e.g, checking accounts, savings accounts, high-yield savings accounts, money market accounts, etc.) are the restrictions that they feature. When you deposit cash into a CD, you agree not to withdraw those funds for a set period of time. This time frame is called the CD’s term. A CD term could last anywhere from a few months to several years, depending on the type of account you open. 

Let’s say you open a 5-year CD. In doing so, you agree to leave the funds you deposit into the account alone for at least five years, until the CD reaches maturity. If you opt to withdraw cash from the account early, you may have to pay an early withdrawal penalty. That penalty could offset some of the interest you earned on the account — potentially to a significant degree. 

In exchange for agreeing not to touch your CD funds for a predetermined period of time, a bank or credit union may offer you higher interest rates. At the time of writing, some of the best CD rates range between 4.00% and 4.50%. By comparison, the average interest a savings account earned in January 2023 (also called the annual percentage yield or APY) was just 0.33% according to the FDIC

Featured Certificate of Deposit

CIT Bank Term Certificates of Deposit

Open CD

Member FDIC.

  • Our Rating 3.5/5 Read the review
  • Minimum
    Deposit Required
    $1,000
  • 1 Year APY0.30% More Info

    Annual Percentage Yield is accurate as of January 24, 2023. Interest rates for CIT Bank’s term CDs are variable and subject to change at any time without notice

  • 3 Year APY0.40% More Info

    Annual Percentage Yield is accurate as of January 24, 2023. Interest rates for CIT Bank’s term CDs are variable and subject to change at any time without notice

  • 13-Month APY4.65% More Info

    Annual Percentage Yield is accurate as of January 24, 2023. Interest rates for CIT Bank’s term CDs are variable and subject to change at any time without notice

CIT Bank offers a variety of term CDs ranging from six months to five years. Interest rates vary depending on term length, but generally CIT’s best rates come from slightly unusual term lengths, such as its 13-month CD. See site for details.

Overview

If you’re looking for a dependable way to earn interest on your money in the short-term, CIT Bank’s certificates of deposits may be an excellent choice for you. However, those looking to open a long-term CD may be better off looking elsewhere.

Pros

  • Strong rates for 13 and 18 month terms
  • FDIC insured

Cons

  • Rates for longer terms unimpressive

How Does a High-Yield Savings Account Work? 

A high-yield savings account is a type of savings account that typically pays higher-than-average interest on your money. At present, some of the best high-yield savings accounts offer interest rates exceeding 4.00% – well above the average national savings rates

With a high-yield savings account, you deposit funds just like you would with any other savings account, paying attention to any minimum balance or opening deposit requirements. When you need to access funds, you can withdraw them from a branch (if available) or via an ATM, or you might be able to transfer them online to a connected bank account. 

Keep in mind that with savings accounts (regular savings, high-yield savings, money market accounts, etc.), your bank might limit the number of withdrawals you can make per month. Often you cannot make more than six transfers or withdrawals from a high-yield savings account during a calendar month, though there may be some exceptions to this rule.  

If you’re interested in earning the highest APY possible on your money, you might need to consider opening a high-yield savings account with a different bank than you use on a regular basis. And although you might hesitate to open an account with another financial institution, there are some definite perks to keeping your savings in a separate bank account

Featured High-Yield Savings Accounts

UFB Direct Best Savings Account

Open Account

at UFB

  • Our Rating 5/5 Read the review
  • APY4.21% More Info

    UFB Direct breaks balances into five tiers, but, currently, there is only one interest rate.

  • Minimum
    Deposit Required
    N/A
  • Intro Bonus N/A

The UFB Direct Best Savings Account offers one of the highest interest rates available for your money. The UFB APY is up to 4.21% on your balances, the highest interest rate offered by the bank. There are no monthly maintenance fees and no minimum balance to open your account.

Overview

With one of the strongest high-yield savings interest rates on the market, as well as no monthly fees or minimum opening deposit, UFB Direct’s Best Savings Account is an extremely attractive package.

Pros

  • Strong interest rate
  • No maintenance fees or minimum monthly balances
  • Free complimentary ATM card
  • Mobile app and SMS banking

Cons

  • No signup bonus
  • No associated checking account

Quontic Bank High Yield Savings Account

Open Account

at Quontic

  • Our Rating 3.5/5 Read the review
  • APY3.50%
  • Minimum
    Deposit Required
    $100
  • Intro Bonus N/A

With Quontic Bank’s High Yield Savings Account, you’ll earn 3.50% APY on all balances. This is competitive with some of the better high-yield savings accounts, and it’s far better than what’s offered by the majority of traditional banks. Plus, this account doesn’t have a monthly maintenance fee, and the minimum opening balance is relatively low.

Overview

With a minimum opening deposit of $100, Quontic Bank’s High Yield Savings Account offers a flat 3.50% interest rate on all balances.

Pros

  • Relatively strong interest rate
  • No monthly maintenance fees
  • Pay Ring for contactless payments
  • Access to multiple ATM networks

Cons

  • Minimum opening deposit required
  • No physical branch locations
  • Excess transaction fee for exceeding 6 transactions per statement cycle

CDs vs. High-Yield Savings Accounts

Below is a side-by-side comparison of the benefits that both CDs and high-yield savings accounts offer. 

Certificates of Deposit High-Yield Savings Accounts

Penalties for Early Withdrawals

Traditionally Up to 6 Withdrawals Per Month

Offers Some of the Highest Interest Rates Available

Typically Higher-Than Average Interest Rates

Generally No Monthly Maintenance Fees

Monthly Maintenance Fees May Apply

Often FDIC Insured Up to $250,000

Often FDIC Insured Up to $250,000

Typically Fixed Rates

Rates May Fluctuate with the Market

How to Choose Between a CD and High-Yield Savings Account

couple checking their investments
iStock

Both CDs and high-yield savings accounts can offer a lot of value as savings vehicles to help you reach your financial goals. 

You might consider opening a CD if you:

  • Are working toward long-term savings goals and know that you won’t need to access a portion of your savings for several months or years. You can also consider no-penalty CDs if you want flexibility to withdraw funds early, if needed. However, the interest rates on those accounts typically aren’t as generous. 
  • Want to minimize investment risk and avoid the volatility of the stock market, at least with a portion of your portfolio. Yet consider discussing all of your options with a professional financial advisor first. The SEC notes that the stock market has produced historical annual returns of around 10% — much higher than the average interest that CDs offer. 

You might consider opening a high-yield savings account if you:

  • Need the flexibility to access your funds on a more frequent basis. 
  • Are working toward shorter-term savings goals and don’t want to lock away your money for an extended period of time (assuming that short-term CDs don’t appeal to you).
  • Don’t want to commit to a fixed interest rate because you’re concerned about losing out on potential earnings if interest rates rise. 

Bottom Line

Depending on the goals you’re trying to accomplish, either a CD or a high-yield savings account might be a better fit than the other. Then again, no one lives in a vacuum. You could be trying to reach multiple financial goals at once. If that’s the case, you might benefit from opening both types of accounts. 

Just as you probably have a checking and a savings account, there’s no harm in having both a CD (or multiple CDs) and a high-yield savings account at the same time. When you have both types of accounts, you can use them to store different portions of your overall savings portfolio in each.

ML

Michelle Lambright Black

Michelle Black is founder of CreditWriter.com and HerCreditMatters.com. Michelle is a leading credit card journalist with over a decade and a half of experience in the financial industry. She’s an expert on credit reporting, credit scoring, identity theft, budgeting, small business, and debt eradication. Michelle is also a certified credit expert witness and personal finance writer.