{"id":411,"date":"2023-02-10T22:14:27","date_gmt":"2023-02-10T22:14:27","guid":{"rendered":"https:\/\/www.amerantbank.com\/ofinterest\/?p=411"},"modified":"2025-08-04T07:23:31","modified_gmt":"2025-08-04T07:23:31","slug":"cd-vs-savings-account","status":"publish","type":"post","link":"https:\/\/www.amerantbank.com\/ofinterest\/cd-vs-savings-account\/","title":{"rendered":"CD vs Savings Account"},"content":{"rendered":"\n

CD vs Savings Account: What’s the difference?<\/strong><\/h2>\n\n\n\n

With a turbulent stock market providing inconsistent performance at the end of 2022 and now lingering into 2023, there\u2019s renewed interest (no pun intended) in the predictable (and now higher) returns being offered by savings accounts<\/a> and Certificate of Deposit (CD) accounts<\/a>. Some of this is structural, based on changes in our economy. As interest rates rise, banks and financial institutions are competing against each other with ever higher offerings<\/a>.<\/p>\n\n\n\n

Knowing the differences between CDs and Savings Accounts can help with selecting the right one for personal preference. Understanding the benefits of one versus the other can also make the difference in returns, flexibility, and timing with respect to accessing your funds.<\/p>\n\n\n\n

What is a Certificate of Deposit (CD) and how does it work?<\/strong><\/h2>\n\n\n\n

What is a CD and how does a CD work? Typically, CD accounts are deposit accounts that provide a higher return via a higher interest rate<\/a>. This is especially the case when compared to a standard savings account. This is accomplished by restricting your ability to get your funds while in the CD term. That term can be anywhere between three months and, at extremes, 5 years. Banks interchangeably express the length of the terms in months or years; for example, a CD paying 4% interest for a 60-month term restricts the account holder from removing funds for a period of 5 years.<\/p>\n\n\n\n

If you do need access to your funds prior to that period, there\u2019s typically an early withdrawal penalty. To reduce the risk of harming your returns, you can create a CD ladder.<\/p>\n\n\n\n

What is a CD Ladder?<\/strong><\/h3>\n\n\n\n

A CD ladder entails opening multiple CDs with different terms of length. Shorter term CDs that traditionally pay a lower interest rate are moved into CDs that pay a higher interest rate with a longer term when the shorter terms are completed. In this way, you can consistently have access to your funds, and the rate of growth is comparable to placing all the funds in a longer-term CD.<\/p>\n\n\n\n

When deposited at a bank that is insured by the FDIC, the risk of a CD is not lost. The risk involved is earning less than if you had your funds in a higher rate account \u2013 this happens when interest rates rise. Conversely, if rates fall while you\u2019re locked into a higher rate CD account, you benefit.<\/p>\n\n\n\n

What is a Savings Account?<\/strong><\/h2>\n\n\n\n

A Savings Account is a deposit account that earns interest<\/a>. There\u2019s flexibility with a Savings Account because you can withdraw money at almost any time. Banks typically limit the number of withdrawals you can perform in a specified time. Withdrawal includes bank transfers, sending funds, online\/telephone transactions, paying bills and any other method that extracts money from the account. If you pass the threshold or limit for withdrawals, the bank typically charges a fee for any additional transaction \u2013 or may restrict you from making the transaction altogether (though that is rare).<\/p>\n\n\n\n

With savings accounts, you can access money for nearly any reason, and they\u2019re great for emergency funds without the penalties of CDs. They can also be linked to checking accounts as a source of funds<\/a> in case the checking account is overdrawn for lack of funds. Note that a charge may be incurred for overdrafts anyway, but the flexibility afforded is a key component of savings accounts.<\/p>\n\n\n\n

Savings accounts typically pay a lower rate than CDs and that comes with the advantage in ease of withdrawal<\/a>. Credit unions and online banks can offer high-yield savings accounts, but their may be restrictions and eligibility considerations when compared to standard banks.<\/p>\n\n\n\n

Key Differences in CDs and Savings Accounts<\/strong><\/h2>\n\n\n\n

Interest Rates and Earnings<\/h3>\n\n\n\n

Key differences between CDs and Savings account include:<\/p>\n\n\n\n