Choosing between Certificates of Deposit and Savings Accounts

Written by: Jennifer Watkins


When people think of saving money, they are usually consulted with the question of whether to be aggressive and achieve high growth or play safe. Those who want quick growth opt for stocks while those who are less aggressive opt for bonds. However, those that love playing it safe will always go for CDs and savings accounts. If you are the kind that is more interested in safety, then CDs and savings account are a great option for you. But, if you cannot save in both, read on to find out which is the best option for you.

Certificates of Deposit (CDs) Vs. Savings Accounts

CDs are similar to savings account. However, they differ in that they have fixed interest rates and maturity dates. That means that, unlike savings accounts, you cannot withdraw money from a CD if the agreed time has not expired. Alternatively, clients are charged a penalty for early withdrawals. Also, clients have to pay a certain minimum amount when opening CDs. Although these accounts are more restrictive, they tend to pay higher interests than savings accounts.

Types of CDs

Although CDs essentially come with fixed terms and fixed interest. However, different banks can offer other varieties of CDs. Some specialty CDs include;

Jumbo CDs. These are CDs typically work like standard CDs. However, they require clients to make an initial minimum deposit of $100,000. This is in return for higher interest rates. These are normally purchased by large investors.

Individual Retirement Account (IRA). This refers to a regular certificate of deposit that is opened by individuals with a tax advantage.

Bump-up CD. As the term insinuates, this is a type of CD that allows for increasing interest rates. Clients that hold this type of CD can request their banks to increase their interest rate if the bank has done the same for other clients. However, this request is only allowed once during the CD term. Thus, it is important that you be wise when making the decision to request for a bump-up. Also, you should note that the interest rate for this CD is lower than that of regular CDs as it accounts for the anticipated increase in interest rates.

Step Up or Step Down CD. This is also known as flex CD. It maintains a fixed interest rate for a fixed period of time. After this time, the interest is lowered or increased to a predetermined level.

No Penalty CD. This is type of CD that differs from traditional CD in that it allows clients to make early withdrawals without being fined. In this case, it seems highly similar to savings accounts. However, unlike regular savings accounts, this CD allows you to make an early withdrawal without penalty only if you withdraw all the money. Also, the interest rate remains fixed unlike in savings accounts.



-Higher interest rates -Penalties for early withdrawals
-Fixed interest rates thus very stable -No access to deposit through electronic transfers, checks, and ATMs
-No fees as long as the CD account is held to maturity

-CDs are renewable

-Asks for minimum deposit

Savings Accounts

Savings accounts are typically accounts that allow you to withdraw money, up to a certain amount, while earning interest. Federal limits certain savings accounts to 6 withdrawals per month.

Regular Savings Account. These are similar to check accounts. However, they do not allow check-writing although they can be linked with checking accounts in order to ease transfers. Also, they have a higher minimum requirement and have lower interest rates.

Money Market Accounts. These are a great option for people who want to play it safe as they are FDIC insured and are highly-liquid. However, unlike regular savings accounts, money market accounts require you to have a higher minimum balance. But, on the upside, these savings accounts yield a higher interest and do not have a limit on the number of withdrawals that can be made on a given month.

Automatic Savings Plans. This type of savings account is a great choice for people who tend to spend on impulse. It allows such clients to sign up for a specific amount that they are willing to be deducted from their checking account. This amount goes to the savings account and they can later enjoy money growth.

Choosing the Right Account for your Needs

Ease of Access

If you want to open an account that will allow you easy access to your money, a savings account is the best option for you. Besides, you can withdraw money from your account at any given time without incurring penalties. Also, you can feed money into this account at any given time. Therefore, savings accounts are ideal for saving cash that you might need to spend in the near future. For example, this would be a great place to save emergency cash.


CDs have a fixed minimum amount that must be deposited for you to hold an account. Thus, these accounts are suitable for people with more money to save. On the other hand, savings accounts do not have minimums attached to them. Therefore, they are a great choice for people who want to start small as you work your way up.

Interest Rate

When choosing whether to save money in a savings account or a CD, it is important that you factor in the interest rate. Generally, CDs have higher interest rates than traditional savings accounts. Also, with CDs, you benefit from the safety and stability of fixed interest rates. This is therefore a great option for people who want to avert risks and at the same time grow their money. However, if you predict that the interest rate will grow over time, it is best to stick with regular savings accounts. But, fluctuating interests can also be a weakness on the side of savings accounts. Besides, you risk interest rate depreciating over time, which would result in lower yields over time.

Therefore, although CDs can lock up your money and limit you from enjoying higher interest rates, there are various strategies that can help you to get the most out of these accounts. For example, you can ladder your CD account meaning that you have different accounts maturing at different times. This will ensure that you take advantage of increasing interest rates.


If you are looking for guaranteed growth, CD is the way to go. Besides, the interest rate is predetermined and fixed. Therefore, you know the exact amount of money you will have after the period. However, with savings accounts, you can never be too sure about the yield as the interest rate is prone to fluctuations.

Bottom Line

We are lucky that we have banking options to choose from when saving money. If you are looking for an account that allows you ease of access to your money and that could potentially earn you higher yields, then a saving account is the best option for you. However, if you are looking for stability and risk aversion, CD is a great option.


Related Posts

Choosing between Certificates of...

Share Tweet