3 Little-Known Perks of Choosing a Savings Account Over a CD

If you need to access your funds regularly, one is clearly better than the other.

Certificates of deposit (CDs) are a popular way to grow your wealth without risking it in the stock market. All you have to do is open one, put some money in, and then leave it alone for the CD term and you'll earn a profit. If you choose a CD with a longer term, you might even snag an annual percentage yield (APY) that beats the top online savings accounts.

But CDs aren't always the best home for your money. If any of the things below appeal to you, you're probably better off keeping your money in a savings account, even if it means earning a little less in interest.

1. Withdrawing your money without penalty

CDs require you to lock up your money for the length of the CD term, which can be anywhere from a few months to several years. If you try to withdraw your money sooner, you could pay a penalty in lost interest to do so. That's why these accounts, especially those with long terms, need a high APY as an incentive to encourage people to open one.

Savings accounts don't have this drawback, so they're a much better option for those who think they'll need access to their cash to cover emergencies or to pay for upcoming expenses. And if you choose an online savings account, it's often possible to find APYs that are pretty close to what the best five-year CDs offer.

But that doesn't mean savings accounts are completely without restriction. Before the COVID-19 pandemic, a federal law known as Regulation D restricted you to six penalty-free withdrawals from your savings account per month. Though the government suspended this rule in early 2020, some banks continue to enforce some type of monthly withdrawal limit. If you plan to withdraw money more often than six times per month, a checking account may be a better place for your funds.

2. APY could increase over time

When you choose a CD, you generally lock in your APY for the full CD term. This can be nice when interest rates are falling because your APY won't drop. But this can be a drawback when interest rates are rising, like they are right now.

When interest rates climb, there's always a possibility that your savings account APY will rise over time. But with a CD, you're stuck earning your locked-in rate until your CD term is up, unless you choose to pay the penalty and withdraw your funds early.

3. Withdrawing cash directly

CDs don't enable you to directly withdraw funds from the account via check or ATM card because you're not supposed to withdraw money from a CD at all until the term is up. But this isn't always the case with savings accounts.

Savings accounts usually don't have as many options for withdrawing your money as checking accounts do, but there are several that offer ATM cards for those who want to withdraw cash without first transferring the funds to a checking account.

Those who want the high APYs of savings accounts and CDs with the greater access of checking accounts might also consider a money market account. These typically offer higher APYs and several ways to access your funds, but many have high opening deposit requirements.

There's no clear-cut answer as to whether a CD, a savings account, or one of the other accounts mentioned here is a good fit for you. It depends on how you plan to use the money in the account. If you don't think your current bank account is a good fit for you, take some time to compare the options listed above to see if there's another type that would suit you better.