3 Times It Pays to Keep Your Money in a Savings Account Over a CD

The benefit of keeping your money in the bank is that your principal deposits are guaranteed for up to $250,000 per person, per bank, provided your bank is FDIC-insured. But when it comes to keeping money in the bank, you have choices. You could keep your cash in a regular savings account, or you could open a CD instead.

The upside of opening a CD (certificate of deposit) is that you might snag a higher rate of interest on your money than what a savings account will give you. Also, that rate is guaranteed for the duration of your CD.

Your savings account might be paying an APY of 4.2% at present. But if market conditions change, in three months from now, you could be looking at 4% instead. However, if you lock in a 12-month CD at 4.5%, that's the interest rate you're guaranteed to get until your CD matures.

Despite these advantages, there are some scenarios where it makes more sense to keep your money in a savings account. Here are a few that might apply to you.

1. It's for emergencies

It's important to have an emergency fund so you have cash reserves to tap when an unplanned bill pops up, like a home or car repair. But if you keep your emergency fund in a CD, you might run into some issues when you need to raid it.

CDs generally impose penalties for cashing out early. And whereas savings accounts allow you to withdraw a portion of your balance, with a CD, you generally have to keep your money locked away or cash out the entire thing. So it's best not to put yourself in the position of facing an early cash-out penalty.

2. It's for a near-term goal

You may be on the cusp of being able to put a down payment on a new car or being able to buy the new piece of furniture your house has been needing. If you put that money in a CD, you might have to wait months until it comes due to access your cash. That could mean missing out on a great deal (such as if your dream couch goes on sale) or simply having to wait longer to meet your goal when the money is sitting right there.

3. CD rates are lower than what savings accounts are paying

CDs often pay more than regular savings accounts -- but that's not always the case. And if you're not going to get a higher interest rate from a CD, then there's really no sense in committing to one when you can keep your money in a savings account instead.

Right now, for example, Capital One is offering a 4.30% APY on its Performance Savings Account. But it's only offering a 4.25% APY on a six-month CD. So in this case, opting for the CD could mean earning less interest on your money.

There are many situations where putting money into a CD makes sense. But in these scenarios, a savings account is generally a much better option.