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High-yield savings accounts vs. CDs: Which is best for maximizing your money as rates cool?
Savings rates continue to decline following the Federal Reserve's second rate cut in four years on November 7. Yet you can still find high-yield savings accounts and certificates of deposit paying out up to 10 times the 0.45% national savings average reported by the FDIC.
If you're thinking about moving your money to a HYSA or CD, now's the time to strike. Each type of deposit account provides a safe, stable way to plan for a family vacation or home renovation, contribute to a loved one’s college fund, save toward retirement or build a cushion for a rainy day. And they’re easy to find at such big-name banks as American Express or Capital One and digital banking platforms like SoFi or Ally.
Yet while HYSAs allow for flexible access to your money, CDs come with fixed rates that won't change over the life of your term, among a few other key differences. Here’s how to compare these two savings products to find the best for your budget and financial goals — and get in front of lower rates in the next year.
What is a high-yield savings account?
A high-yield savings account — or an HYSA — is a type of deposit account that can earn you a higher rate of interest on your savings than with a traditional account. The rate of interest is expressed as an annual percentage yield (APY) reflecting the earnings you can expect on your balance in a year, including compound interest. The higher your APY, the faster your money will grow.
The interest rate on a high-yield savings account is variable, meaning it can increase or decrease with market conditions, much like a traditional savings account. And while the Federal Reserve used to limit withdrawals from these accounts to six a month, that limitation is suspended in the wake of the pandemic, offering you more flexible access to your money without penalties or fees (though read your account’s fine print to confirm).
You can open a high-yield savings account with most banks and credit unions, though you’re likely to find the highest rates with a digital or online bank. While some high-yield accounts require a minimum opening deposit to earn the highest advertised APY, many allow you to sign up with opening deposits as low as $100. And you can rest assured your money is safe: Deposits in high-yield savings accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC) — or the National Credit Union Administration (NCUA) for accounts at a credit union.
Dig deeper: Common bank fees you shouldn't be paying — and how to avoid them
Benefits of an HYSA
Competitive returns. Even with recent rate cuts, high-yield savings accounts still earn up to 10 times the national average savings rate — when compared to a traditional savings account.
No or low fees. The best high-yield savings accounts come with few fees and low minimum deposit requirements, making it easy to maintain your account long term.
Flexible access to your money. Withdraw or add to your HYSA as needed without penalty — though read your account’s find print for any limitations.
Federally insured up to $250,000. High-yield savings account deposits are insured by the FDIC or the NCUA for up to $250,000 per person, per account.
Expert take: I tracked my high-yield savings through both 2024 Fed cuts — here's why an HYSA is worth it
Drawbacks of an HYSA
Variable rate can change. Savings account rates can increase or decrease at any time based on market conditions.
Transfers may not be instant. Depending on the bank, you may need to wait up to three days for transfers to or from your account to clear. Though many banks — like American Express — allow you to link to your everyday bank for a faster way to move your money.
Limited deposit and withdrawal options. Online banks don’t typically have their own branches or ATMs — instead, they partner with existing ATM networks. To deposit cash, you’ll need to find an in-network ATM that accepts deposits or deposit the cash into a linked account and then transfer money to your savings electronically.
May require minimum opening deposit. Some high-yield savings accounts require a high opening deposit to earn the highest advertised APY. For example, Brio Direct requires a $5,000 minimum balance to earn its high APY. Understand the account’s terms and conditions before signing up.
Dig deeper: How much should you keep in a high-yield savings account?
What is a certificate of deposit?
A certificate of deposit — called a CD — is a savings account that pays a fixed rate of interest on an initial deposit that you agree to lock away for an agreed-on period of time. CD terms can range from one month to five years or longer. Typically the higher your deposit amount, the higher the APY — though right now, with banks anticipating further Fed rate cuts this and next year, you'll find the strongest rates on shorter terms of about 12 months, with the most competitive yields offered by online banks or digital accounts.
Unlike a traditional or high-yield savings account, the APY on a CD is fixed, which means it won’t fluctuate over the life of your CD, offering predictable returns you can count on. After your CD matures — or the term expires — you receive your initial deposit back plus interest earned, including compounding.
If you find yourself needing to access your money before your CD matures, you can “break” the CD by paying what’s called a withdrawal penalty. This penalty is a fee expressed in months of interest you’re giving up — for example, 180 days of interest on a 24-month CD. Generally, the longer the term, the higher the penalty fee.
Like a high-yield savings account, CDs are insured up to $250,000 by the FDIC or NCUA, depending on whether your account is with a bank or a credit union.
Expert take: Here's why you need to invest in a CD today
Benefits of a CD
Guaranteed rate of return. With a CD, you make one deposit and earn a guaranteed interest rate over a specified term that’s yours after the CD matures.
Boosted savings rates. Many banks and financial institutions offer CDs at rates that are higher than you’ll earn with the average savings or money market account — with digital and online banks offering the highest rates on average.
Choose from a range of CD terms. You can find terms of nine months to five years or longer to fit your financial goals. Rates for 12-month CDs can outpace the average bank account, and longer terms offering predictable payouts no matter how far rates drop.
Drawbacks of a CD
Withdrawal penalties. If you need to access your money before your CD term matures, you face fees equal to as much as three to six months’ worth of interest, depending on the account.
Not the highest investment returns. CDs are a safe way to steadily earn interest with a guaranteed rate of return, but returns are modest when compared with more volatile investments like stocks. And by locking your money in a CD, you could miss out if average rates increase.
You can’t add to your CD. After your CD locks, you aren’t able to add more money until after the CD matures — at which point, you roll it over to a new CD or a different account.
Dig deeper: How much should you keep in a certificate of deposit?
High-yield savings accounts vs. certificates of deposit: How they compare
HYSAs and CD accounts offer higher rates of return than a traditional savings account with differences in access, flexibility and how interest is earned.
High-yield savings account | Certificate of deposit | |
Pros | • Today’s rates are competitive with CDs • Withdraw your money without penalty • Add to your account when you wish | • You can lock in historically high rates before they drop • Fixed rate protects your investment from market fluctuations |
Cons | • Variable APY can increase or decrease with the market • May not earn as much as the best CD rate | • Withdrawing money before it matures comes with hefty penalties • You can’t add more money to your CD • Fixed APY means you could miss out if rates increase |
HYSAs and CDs: How leveraging both types of accounts can benefit your savings budget
The Federal Reserve cut its federal funds rate for the second time in four years on November 7, which lowered the benchmark rate by a quarter point to a range of 4.50% to 4.75%. This follows September's aggressive half-point reduction, marking a clear shift toward lower rates as we head into 2025.
With lower rates ahead of us, it can benefit your budget to include both a high-yield savings account and a certificate of deposit into your savings strategy.
A high-yield savings account offers significantly higher rates than you’d find with a traditional savings account without worry over access to your money — and they're likely to outperform everyday accounts, even after future Fed rate cuts. HYSAs are ideal for saving toward specific financial goals or building a readily accessible emergency fund, and most come with robust online banking and digital apps that allow you to seamlessly move and manage your money among your everyday accounts.
A certificate of deposit is a tool that can help you lock in and leverage the best rates on the market long into next year and beyond. Your money will continue earning a fixed APY over the life of your CD, protecting your savings against falling yields. When deciding between CDs, think about how much money you can afford to lock away, and choose a term offering the highest rate available on that deposit amount. While it used to be true that longer terms attracted higher rates, in today’s market, today's highest rates are on shorter terms of up to 12 months.
If you're not ready to tie up your money into one long term, look into building a CD ladder that spreads out your deposit across a range of maturity dates for staggered rolling returns on your investment.
Dig deeper: How to prepare for an interest rate cut (and 4 money moves you should avoid)
FAQs: High-yield accounts, CDs and saving your money
Learn more about deposit accounts, saving money and planning for your future.
Can I lose money in a high-yield savings account?
No, the money in your HYSA is insured for up to $250,000 against bank failure, protecting your money and the interest you earn. Yet while losing your money isn't likely, you’ll want to be aware of FDIC limitations and other potential risks. Learn more about how to maximize the interest you can earn — and avoid hitting limits, triggering fees or missing lower rates that can eat into it — in our guide to minimizing risks with your high-yield savings account.
What happens to my bank account's balance when I die?
What happens to your bank account when you die largely depends on whether you’ve named a beneficiary to receive your assets after you die or you share the account with a joint owner. Learn steps you can take to avoid any complications in our guide to death and your bank account.
How much should I lock up in a CD?
People usually put money into a certificate of deposit to take advantage of low-risk, guaranteed returns. But you don't want to tie up money you'll need before your term expires, among other risks. To find the right balance for your budget, learn more about how much might be too much to keep in a CD.
Sources
National Rates and Rate Caps, FDIC. Accessed November 15, 2024.
About the writer
Kelly Suzan Waggoner is personal finance editor at AOL. Before joining AOL, Kelly was managing editor at Bankrate and editor-in-chief at Finder, where she led a team focused on helping people to make unfamiliar financial decisions around banking, lending, credit cards, investments and more. Kelly’s expertise has been featured in Finder, Bankrate, Nasdaq, Lifehacker and other publications. Today, she's dedicated to empowering those planning for, newly entering or fully enjoying retirement to get the most out of their finances — whether that's saving money, managing debt, maximizing rewards or growing their wealth.
