High-yield savings vs. CD: Which is right for you?

Published on Nov 25, 2023

High-yield savings vs. CD: Which is right for you?

Most Americans make savings a regular part of their financial routine. In fact, 89% say that they save on a regular basis. Yet, while saving remains an important goal, less than half (45%) of Americans say they could cover a $1,000 emergency without leaning on some other form of cash, like a loan or credit card[1].

Making the most of interest earned on top of your savings is one of the easiest ways to achieve your financial goals more quickly. Understanding how different savings products are good for different goals is an essential element to picking the right one for your needs and staying on track of your overall savings objectives. Two popular savings vehicles — a high-yield savings account and a Certificate of Deposit (CD) — provide valuable options to grow your money at higher rates, but they are unique in several distinct ways.

Account type: High-yield savings

High-yield savings accounts differ from traditional savings accounts by offering you a higher interest rate. When it comes to comparing a high-yield savings account to a CD, here are some features to keep in mind.

Interest rates: High, but usually variable
While higher than a traditional savings account, keep in mind that the interest rate associated with a high-yield savings account is variable. That means that the amount of interest you earn can change at any time. This makes it harder to predict how much money you’ll accrue while you have the account.

Insured: Yes, for federally insured banks and credit unions
The money in a high-yield savings account is either insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). The FDIC backs high-yield savings account bank deposits, while the NCUA backs high-yield savings account credit union deposits. Insurance under either means your money is safe in the case of the failure of your financial institution. In the event you are worried about a bank failure, a high yield savings account is FDIC insured up to $250,000 per depositor. 

Withdrawal limits: Yes
Most high-yield savings accounts come with a limit on the number of withdrawals you can make per month before you start paying a fee.

Monthly fees: Not typically
You’ll find most high-interest savings accounts associated with online banks, although some brick-and-mortar financial institutions offer them, as well. Unlike checking or regular savings accounts, they don’t usually have monthly fees associated with them (other than those you might incur from too many withdrawals), and they tend to be easy to transfer money into and out of, as well.

Account minimum/maximum requirements: Sometimes
This depends on the financial institution that you go with, but some do require minimum deposits to either open the account and/or earn the highest available interest. You won’t usually find maximum requirements with a high-yield savings account.

Best for: Cash you might need any time, but still want to grow
Cash you might want access to quickly — like short-term savings for specific goals you’ll need at a moment’s notice, or emergency funds — might be put to best use in a high-yield savings account.


Account Type: CDs

These timed deposit accounts offer different terms with “fixed and variable” high interest. For example, you might be able to put your money in a 6-, 12- or 36-month CD, depending on your goals for the money and when you think you might need it.

Interest rates: High — fixed or variable
Like high-yield savings accounts, CD rates offer higher interest than traditional savings accounts. CDs carry either a fixed or variable interest rate. The fixed rate CD options allow you to make a more educated assumption for how much interest you’ll earn over the life of the account.

Insured: Yes, for federally insured banks and credit unions
CDs are either FDIC or NCUA insured up to $250,000 per depositor, so your money is safe in the case of failure at your financial institution.

Withdrawal limits: Yes
You’ll need to keep your money in for the duration of your CD term. Taking it out sooner usually means you’ll incur an early withdrawal penalty.

Monthly fees: Not typically
There aren’t typically fees associated with keeping your money in a CD, other than the fee you would pay for withdrawing the money early.

Account minimum/maximum requirements: Sometimes
It’s not uncommon for CDs to come with either maximum and/or minimum deposit limits depending on the length of maturity for the account and amount of interest you want to earn.

Best for: Cash you won’t need until your maturity date is up
Knowing how much interest you’ll earn on your money is one of the safest ways to grow your cash over time, particularly in a fluctuating market. If you have a specific financial goal that is more long term and that you know won’t pop up until the maturity date of your CD or after — and you can access money easily and quickly in another emergency fund — these accounts are a great way to earn more on your money than traditional, or even high-yield, savings accounts.

For more on how CDs differ from other savings options — like a Money Market and IRAs — click here. Then, when you’re ready, Valley has three CD products plus a high yield-savings account that work for a variety of timelines. Give us a call or visit a branch today with any questions.

[1] https://www.nerdwallet.com/article/banking/data-2023-savings-report

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Valley Direct High Yield Savings Account

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