CD vs. HYSA: What's the Better Place for Your Savings Right Now?
KEY POINTS
- CDs let you lock in rates and earn a guaranteed amount of interest, as long as you're willing to part with those funds for months or years.
- HYSAs can allow you to earn a high APY and access your cash when you need it, provided you meet the requirements to earn the higher rate.
- Right now, a HYSA offers both higher rates as well as the ability to add to and withdraw funds as needed, making them a better option than CDs.
If you're anything like me, you've probably come across an endless supply of financial hacks and tips to maximize your money. And some of it is worth considering. But it can be tricky to know the right move as the economy continues to shift.
After all, a high-interest-rate environment cuts both ways, giving you the opportunity to earn more for putting money into interest-bearing accounts while also hiking up the cost of high-interest debt, like that held on credit cards.
Certificates of deposit (CDs) and high-yield savings accounts (HYSAs) can be appealing if you have extra cash to put away.
Here's what you need to know about them, and which one is a better option right now.
Our Picks for the Best High-Yield Savings Accounts of 2024
American Express® High Yield Savings
APY
4.25%
Rate info
4.25% annual percentage yield as of July 8, 2024
Min. to earn
$1
|
APY
4.25%
Rate info
4.25% annual percentage yield as of July 8, 2024
|
Min. to earn
$1
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Citizens Access® Savings
APY
4.50%
Min. to earn
$0.01
|
APY
4.50%
|
Min. to earn
$0.01
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APY
5.10%
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Min. to earn
$0
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The basics of CDs and HYSAs
Both CDs and HYSAs let you earn interest, but they work quite differently:
CDs
Current rates: Up to 5.25%
Interest: Fixed
How it works:
- Deposit a chunk of cash for one month to years at a time
- Get a guaranteed amount of interest as long as you leave the money alone
- Usually pay a penalty if you take out money early
HYSAs
Current rates: Up to 5.36%
Interest: Variable
How it works:
- Open the account and funnel money in and out as you want to
- Earn more interest than a traditional savings account as long as you meet the requirements
- Potentially earn a much lower rate if you don't meet the requirements
Why HYSAs are the better option right now
It would be easy to say that a CD is better than a high-yield savings account because it guarantees a certain amount of interest for a specific amount of time, while rates on HYSAs can change at any time.
For example, imagine you have $5,000 to put in either a 3-month CD or a HYSA. If the CD has a 5.25% APY, you'd earn $65.63 over three months. A HYSA that has a 5.36% APY would earn $67 over the same time period -- unless rates were to fall during that time, which could drop the earnings below that of the CD.
But here's the thing: While CDs offer stable APYs, the highest rates aren't usually associated with the longest terms right now. Instead, they tend to fall in the shorter terms -- meaning you'd actually be selling yourself short by going for a longer term, which is a big draw for these products. And if rates drop in a few months, you'd still probably not get much of an advantage by locking away those funds in a CD, depending on the remaining term and how much rates change.
Meanwhile, HYSAs preserve the ability to tap into your cash when you need it, which can be essential if something unexpected (and expensive) comes up. And you can keep adding to the balance, maximizing your potential earnings over time.
Just be sure that you can meet the requirements for earning the highest HYSA rates and avoid fees. That may mean maintaining a specific balance in that account or limiting withdrawals each month. Assuming you can do that, the risk of losing out on the gains offered by a CD are outweighed by the higher rates and accessibility offered by HYSAs.
In a time when inflation and the ever-increasing cost of living are making it that much harder to get by, it's vital to make sure you can access your money when you need it. That way, you'll be ready for whatever comes your way, and you'll be able to simultaneously capitalize on the high-rate environment.
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