Certificate of Deposit Vs. Savings Account
8 Min Read | Published: April 25, 2025
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn about certificates of deposit vs. savings accounts, browse CD and high-yield savings account options, and make smarter choices for your money.
At-A-Glance
- A certificate of deposit (CD) is a savings account that offers fixed interest rates, giving investors a low-risk savings option but with restricted fund access.
- A high-yield savings account (HYSA) can earn higher interest than traditional savings accounts and provide easier withdrawals, but rates may change.
- When choosing a certificate of deposit vs. a savings account, consider your financial goals first and how much flexibility you may need to access your funds.
Choosing between the security of a certificate of deposit (CD) and the flexibility of a savings account can be complicated, as the answer entirely depends on your needs. CDs may offer fixed rates and predictable growth, while a high-yield savings account (HYSA) gives you easy access to interest-earning emergency funds. Let’s learn about each investment tool and how to solve the savings account vs. CD debate to help you reach your financial goals.
What Is a Certificate of Deposit?
A certificate of deposit (CD) is an investment and savings tool that allows you to set aside money for a fixed period while earning interest, typically at higher rates than a traditional savings account.1 While you may not be able to touch your funds until the CD reaches its maturation date, getting your original deposit plus the accrued interest can be an attractive incentive. If you’re wondering when CDs are a good investment, any time can be acceptable if you have a clear financial goal.
Certificate of Deposit Pros and Cons
Like most financial products, CDs have advantages and disadvantages. Some of the benefits include:2
- Savings Security
CDs are may be safe, low-risk, and attractive to more conservative investors. - Reliable Returns
CDs often give you a fixed interest rate, so you know exactly how much you'll earn by the end of the term. - Federally Insured
CDs from federally insured institutions protect deposits up to $250,000, keeping your money secure even during national economic challenges. - Flexibility
CDs can be flexible products with variations in offerings, possibly making it easier to match your financial goals with the right product. - Strategic CD Laddering
CD laddering lets investors divide their deposits among several CDs with different periods, interest rates, and annual percentage yields (APYs), to maximize returns.3
Here are some potential CD disadvantages to consider:4
- Liquidity May Be Limited
Liquidity refers to how quickly you can get cash or transform something you own into cash, but since CDs lock in your funds until the maturation date, early withdrawals may trigger penalties. - Potential For Lower Returns
Investors might consider CDs safe because their interest rates may be fixed and stable, so their returns are naturally lower. - Minimum Deposit Requirements
Some CDs require a minimum investment, which could limit accessibility for those without extra cash on hand. - Inflation Risk
If the interest rate on a CD doesn’t keep up with inflation, your savings may decrease in value over time.
What Is a Savings Account?
A savings account is another tool that helps you put interest-accruing money aside for big purchases, emergencies, or other financial goals. High-yield savings accounts (HYSAs) let your deposits earn even higher interest, but may have withdrawal and transfer limitations like CDs. If you have extra money or supplemental income that you can spare to deposit into a savings account, you may be able to increase your financial opportunities in the future.
Unfortunately, savings accounts in a zero-interest scenario may not always be immune to market volatility, so if the Federal Reserve cuts interest rates to protect against inflation, your money may not grow how you originally envisioned.5 Diverse investment strategies and budgeting may help offset negative market shift consequences.
Savings Account Pros and Cons
Traditional and high-yield savings accounts are often a secure, accessible method for growing money. Here are some ways your savings accounts could benefit you:6
- Deposit Security
Like many CDs, traditional savings accounts and HYSAs may be federally insured, protecting up to $250,000. - Easy Access
Traditional savings accounts may allow withdrawals when necessary, and some HYSAs also offer simple online transfers and penalty-free access to automatic teller machines (ATMs). - Higher HYSA Returns
HYSAs could help your money grow faster than letting it sit in a checking account or other lower-interest savings accounts. - Lower Entry Barriers
Some savings accounts require low or no initial deposits and minimal maintenance fees, making them easier to open with limited cash.
While savings accounts and HYSAs can provide a greater sense of financial security, you should still consider their limitations:7
- Low or Fluctuating Rates
Traditional savings accounts can offer minimal, lower-risk returns, while HYSA rates might change frequently based on market behavior. - Limited Withdrawals
Many savings accounts, including HYSAs, may cap the number of transactions, restricting access to funds. - Minimum Balance and Deposit Requirements
Some HYSAs require a certain balance to earn the highest APY, reducing flexibility or returns for smaller savers.
When to Choose a CD vs. Savings Account
Now that you understand the difference between a CD and a savings account, your personal financial goals can help you choose between them.8 If you're saving for a big purchase, like a car or the down payment on a new home, a CD may help your money grow with a fixed interest rate despite market ups and downs. But since CDs require you to leave your money alone for a set period, they aren’t necessarily the best option for an emergency savings account. If you may need access to the cash on short notice, a high-yield savings account (HYSA) may be the better vehicle to build your savings with interest.
Frequently Asked Questions
How much a $10,000 CD, or a CD of any amount, makes in one year depends on the financial institution, inflation, and other market characteristics. However, if a hypothetical $10,000 CD has a 5.11% APY, the deposit would grow to 10,511 in 12 months.9
You can leave money in a CD after the maturation date, but this typically involves renewing the CD.10 You can also reinvest the money, place it in other CDs, or withdraw and use it for your needs.
Generally, there is no limit to the amount of CD accounts you can open.11 Your CD account limitations might boil down to how many accounts you can fund while meeting deposit requirements.
You usually have to pay taxes on the interest a CD bears. This is true for every year the account stays open, even if it hasn’t reached its maturity date.12
The Takeaway
Once you understand the differences between a certificate of deposit and other types of savings accounts, it becomes much easier to choose the right option for your circumstances. Investors with clear financial goals who don’t need quick access to their funds might prefer a CD that helps their money grow with a predictable and fixed return. And savers who need flexible access to emergency funds and penalty-free withdrawal options may want to opt for a high-yield savings account to better serve their financial needs.
1 “Certificates of Deposit (CDs),” Investor.gov
2,4 “Are CDs Worth It?,” Experian
3 “APY vs. Interest: What’s the Difference?,” Experian
5 “How the Federal Reserve impacts savings account interest rates,” Bankrate
6,7 “Pros and cons of a high-yield savings account,” CNBC
9 “Here’s how much investing $10,000 in a CD right now could earn you in 1 year,” Bankrate
10 “What to do when a CD matures,” Bankrate
11 “How Many CDs Can You Have at One Bank?,” MSN
12 “Tax considerations for certificate of deposit (CD) investors,” Bankrate
Liv Gillespie is a Philadelphia-based writer with a double M.A. in English Linguistics & Literature and Secondary Education. Her work focuses on personal finance.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
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