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High Yield Savings Account vs CD – Which Should You Choose? 

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When interest rates are high, you don’t have to be a stock market whiz to earn decent returns on your money. By depositing cash into a high yield savings account (HYSA) or a certificate of deposit (CD) in 2024, you can earn as much as 5.50% or more.

Which type of account is a better place to put your money? It mostly depends on how soon you’ll need the cash, but with good advice from financial institutions, there’s a chance you could benefit from using both.

What’s a High Yield Savings Account?

A high-yield savings account (HYSA) has most of the features of a traditional savings account, but it pays you a higher annual percentage yield (APY), which is the interest you earn on your deposits. While the rate on savings accounts is often as low as 0.01% APY, many HYSAs are earning an impressive 4%-5% or more in 2024.

Like savings accounts, the interest rates on HYSAs are not fixed, which means they can fluctuate depending on market conditions that are beyond your control. In other words, there are times when your HYSA won’t pay you as much interest.

Another similarity with traditional savings accounts is that you can deposit and withdraw money at will, but since these accounts are made for holding savings over the long-term, they’re not set up for everyday spending.

So depending on the bank and the account, you might face a penalty fee if you make more than six withdrawals per month. Plus, you won’t get checks or a debit card that you can use to make payments from the account.

Pros of a High Yield Savings Account

  • Make six or more penalty-free withdrawals per month, which can come in handy if you need to tap into your savings for an unexpected expense like a medical bill or car repair.
  • Earn more interest on your deposits than you would in a regular savings account.
  • Interest is compounding, which means your interest will earn interest.
  • Deposits are FDIC-insured up to $250,000, which makes these accounts very low risk, especially when compared to investing in the stock market.
  • Some accounts have no minimum balance and no monthly fees, like Sally Mae’s 4.50% HYSA.

Cons of a High Yield Savings Account

  • Interest rates are not fixed, which means your APY could decrease in the future.
  • Low-risk accounts like HYSAs don’t earn returns as high as some stock or mutual fund investments.
  • Some accounts require a minimum balance to open and a minimum deposit amount, like CIT Bank’s 5% APY HYSA that requires a $5,000 deposit. If you dip below the required amount, you could be charged a fee.

What to Look For in a High Yield Saving Account

Before opening a HYSA, look around to find the best terms you can get for your deposit. Yes, high APY matters, but you’ll want to compare all of these features:

  • APY
  • Minimum balance
  • Monthly fees
  • Other fees
  • How to make deposits and withdrawals
  • Requirements to open an account with the financial institution (usually applies to credit unions)
  • Limits on withdrawals
  • FDIC or NCUA insurance

What’s a CD?

A certificate of deposit (CD) is an account that pays you a set interest rate to leave your money on deposit for a specific amount of time, usually anywhere from three months to five years.

Like HYSA’s, CDs are deposit accounts offered by banks and credit unions that can earn much higher interest rates than savings accounts, but CDs and HYSAs have very different features.

With CDs, you can’t access your money until a pre-set “maturity” date. For example, if you want to withdraw funds for a family vacation before the maturity date hits, you’ll pay a penalty: usually you forfeit a      certain amount of the interest you’ve earned. So these accounts are best for savings that you don’t plan to use for a set period of time.

Pros of a CD

  • CDs typically offer higher interest rates than most deposit accounts, including high yield savings accounts.
  • The comparatively high APY can help prevent you from losing value in your savings due to inflation.
  • Interest rates are fixed, so you’re guaranteed a return on your deposits.
  • CD’s are FDIC or NCUA insured up to $250,000, so they give you a low-risk opportunity to earn interest.

Cons of a CD

  • You’ll face penalties if you want to withdraw funds before the maturity date, so it’s not a good place to deposit money for your emergency fund.
  • Many CDs require minimum deposits, and with some accounts you need a large deposit to get the highest available APY.
  • CDs are one of the lowest-risk account types available, which means you won’t earn as much as you could on some investments.

What to Look for in a CD

CDs come in many shapes and sizes, so you’ll want to do some comparison shopping before choosing one (or more). In addition to high APY, other details like maturity date matter too. Longer-term CDs sometimes accrue higher APY, but an extended maturity date can mean missing out on better returns if rates increase.

These are the features to compare:

  • APY
  • Minimum deposit
  • Maturity date
  • Withdrawal penalty
  • Other penalties or fees
  • Automatic rollover upon maturity
  • How to make your deposit
  • Requirements to open an account with the financial institution (usually applies to credit unions)
  • FDIC or NCUA insurance

Comparing High Yield Savings Account and CDs

Use our side-by-side comparison to help you decide if and when a HYSA or CD is right for you:

Best forEmergency savingsShort-to-mid term savings, or funds for specific future purchases
Fixed or variable APYVariableFixed
Minimum balanceVariesVaries
Withdrawal penaltiesAfter 6 or more withdrawals per monthYes
Can you deposit additional funds after openingYesNo

How to Choose Which is Right For You

Both accounts can serve useful but unique purposes, says Lori Gravitt, assistant vice president and branch manager at Addition Financial Credit Union.

“I personally have funds in both CDs and HYSAs that I selected for the rates and the terms,” she said. “I have funds in CDs that I know I don’t need to touch, and I want to grow. My money that’s in HYSAs is there for emergencies and large purchases I have coming up.”

When to Choose a High Yield Savings Account

For cash you don’t need for day-to-day spending, but might want access to in the near future, a HYSA can be an ideal account. The money you deposit in your HYSA will earn more interest than a regular savings account, but it’s still readily available without penalty if you need it in a pinch.

That makes HYSAs an excellent choice for emergency savings funds. “Many people I advise in the branch make this choice when they are saving for a large purchase or need access to funds in an emergency,” Gravitt said.

When to Choose a CD

If you have a dedicated savings fund that you don’t need to use for the next couple of months or even a couple of years — like money for a family vacation or a down payment on a home — consider a CD.

By depositing the money into a CD, you can fight the effects of inflation on your money. And unlike investing in a retirement account or stocks, you won’t risk taking a huge loss if you need the money on a specific future date.

“I recommend CDs as the best choice for anyone wanting to get the most return on their funds from interest,” says Gravitt. “CDs are also a great choice when you don’t need access to the funds any time soon.”

Additional Resources on Investing

CDs and HYSAs both allow you to earn interest on your savings. But they’re not the only way to earn money. If you want to increase your returns and save for long-term goals like retirement, consider investing in an employer-sponsored retirement account — especially if you have an employer match — or a mutual fund. These investment options can be relatively low risk, but still earn more than bank deposits.

About The Author

Sarah Brady

Sarah Brady is a Personal Finance Writer and educator who's been helping people improve their financial wellness since 2013. Sarah writes for Experian, Investopedia and more, and she's been syndicated by Yahoo! News and MSN. She is a workshop facilitator and former consultant for the City of San Francisco's Affordable Home Buyer Programs, as well as a former Certified Housing & Credit Counselor (HUD, NFCC).


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