CD vs. High-Yield Savings Account: What’s the Difference?

Read our Advertiser Disclosure.
Contributor, Benzinga
February 28, 2024

Having savings can provide a safety net in case you encounter an unexpected expense, such as a medical bill or repairs on your car or house. But you don’t want your money just sitting there. You should put these funds in a place where they’ll continue to grow. Find out the details of a certificate of deposit (CD) versus a high-yield savings account to put your money to work for you and earn passive income.

CD vs. High-Yield Savings Account: An Overview

Understanding a high-yield savings account versus a CD will help you get the most from your money with interest-based growth. Each financial tool offers unique benefits and use cases. Spend some time getting to know how these accounts work.

What Is a CD Account?

CD stands for certificate of deposit. It’s an account type that allows you to earn interest on the balance. The interest rates shift, meaning they could be higher than a high-yield savings account.

The key factor with CD accounts is that your money is locked in the account for a set period. These periods vary based on what you agreed to when you opened the account or when it renews. Terms can be just a few months or they can be several years. 

Regardless of the term you commit to, you can’t touch that money until the CD matures or you’ll incur early withdrawal penalties. So before you open a CD, make sure you have liquid savings elsewhere in case of an emergency so you can confidently say you won’t need those funds. 

Early withdrawal penalties vary based on the financial institution so read the terms carefully. Often, you lose some or all of the interest you’ve earned in the account if you pull the money early.

During the term, the interest rate on your CD will not change, even though the rates might shift in the industry. You’ll have a locked rate for the full CD term. Longer CD terms at high rates are attractive during times when it looks like rates are headed downward because they help you get the most from your money during these times.

Most accounts do not allow you to put additional funds in the account after you’ve completed the initial deposit. There are few add-on CD accounts where you can continue to contribute, just know that these accounts generally have lower interest rates compared to traditional CDs.

What Is a High-Yield Savings Account?

A high-yield savings account works as the name indicates. It is a place to put money you don’t immediately need while earning a higher interest rate than a traditional savings account. The interest rates on these accounts are constantly shifting, but they have reached 5% in recent years. In comparison, the average annual percentage yield (APY) on a traditional savings account is 0.46%, according to the Federal Deposit Insurance Corp. (FDIC).

You can continuously make deposits to these accounts to watch your money grow. However, the interest rate on the account can change throughout the life of the account. The rates are based on the Federal Reserve benchmark interest rate.

At times, your money will grow more than at others, which makes these accounts harder to predict. Regardless, you’ll earn more in this account type than you would a traditional savings account, making it an attractive financial vehicle.

CD vs. High-yield Savings Account: Key Differences

Take a look at these key account differences between accounts to get a better feel for which might be right based on your circumstances.

  • Liquidity: CD accounts lock your money for a set term while high-yield savings accounts allow you to pull the money freely.
  • Deposits: Most CD accounts do not allow for deposits outside of initial funding while high-yield savings do.
  • Rates: Once you open a CD, your rate is locked until it matures while a high-yield savings account will fluctuate as the Federal Reserve interest rates shift

CD vs. High-yield Savings Account: Pros and Cons

Review a side-by-side comparison of the pros and cons between CD and high-yield savings accounts. 

CDHigh-yield savings account
Locked during the term could earn you a higher APY for longer periodsMany accounts FDIC-insuredOften a risk-free place to put your moneyHigher APY compared to traditional savings accountsAllows for continuous deposits with no limitsGenerally offers FDIC insuranceA fairly risk-free place to save moneyFreedom to withdraw your money (within account limits) at any time
Is not as liquid as you’ll pay penalties for withdrawing the money before the end of the termProhibits additional deposits, except in the case of an add-on CDLocks your money for the full termSome accounts have monthly withdrawal maximumsCan have 1- to 2-day delays in moving money from the savings account to a checking accountRates can change during the account’s lifetime

How to Choose Between a High-yield Savings Account and a CD

Choosing between a CD and a high-yield savings account will come down to when you might need the money, how set you want your interest rates to be and whether you plan to continuously contribute to the account. 

You should choose a CD when you know for certain you won’t need the funds for the term. For example, if your bank is offering a two-year CD with a 4% interest rate, you’ll know that’s a strong rate and you need to be comfortable with not touching that money for those two years.

A CD account is also good for those who need help saving money because you can’t touch the funds during that period. That can help you change your mindset about your savings to build healthy financial habits.

Another reason to choose a CD is when you want to know the interest rate you’ll get for certain. That means you can guarantee what you’ll earn during the account term and plan for that. Using this account type can help with long-term savings, such as when you’re planning to purchase a vehicle or home in several years.

In contrast, high-yield savings accounts are good when you might need the money soon. Before opening the account, review the account terms and limitations to see how quickly you would be able to access the money if you need it to ensure it aligns with your needs.

You might also prefer this option when you’ll be adding to your savings regularly, such as setting goals of contributing $100 per month to your savings to get to a better financial position. It’s also a good idea to opt for a high-yield savings account when you don’t have a certain threshold you need to grow the money to within a set period. 

If you aren’t sure of the best way to help your savings grow, consult an online financial advisor who can help you determine the best option based on your circumstances.

How to Open a CD or High-yield Savings Account

Opening a CD or high-yield savings account is simple. You might find these options from your existing financial institution, which can help create continuity for your financial management.

Most financial institutions require documents to prove your identity, such as a photo ID and Social Security card. You’ll also provide personal information, like your address and contact information. Be ready with your initial deposit or full CD amount as that’s a part of the account opening process.

Review what information your bank or credit union requires and have it handy before starting the process to ensure a smooth process. Many financial institutions now allow you to complete the process online, especially if you already have other accounts with them.

Grow Your Savings with the Best Interest Rates

Both CDs and high-yield savings accounts help you to grow your savings with higher interest rates when compared to traditional savings accounts. Evaluate when you’ll need the funds to decide the best place to put them to maximize growth and put yourself in a strong financial position.

Frequently Asked Questions


Is a CD better than a high-yield savings account?


A CD account is best when you want to maximize your returns because interest rates are set for the term and cannot change. A high-yield savings account is better when you need to access the money freely.


How much does a $10,000 CD make in a year?


The yield on a $10,000 CD each year will vary based on your interest rate. For example, if it has a 4% interest rate, you’d yield $400 per year.


What is the biggest negative of putting your money in a CD?


The biggest negative of putting your money in a CD is that you can’t access it during the term without incurring penalties.


What is the main drawback of a CD over a savings account?


The main drawback of a CD compared to a savings account is that you cannot access the money during the term without paying penalty fees. You’ll need to be comfortable with the money sitting in your account during that time.

Rebekah Brately

About Rebekah Brately

Rebekah Brately is an investment writer passionate about helping people learn more about how to grow their wealth. She has more than 12 years of writing experience, focused on technology, travel, family and finance. Her work has been published in Benzinga, Hearst Bay Area, FreightWaves and Dallas Observer publications.