CDs vs. High-Yield Savings: Where to Put Your Money

## The Basic Trade-Off: Rate vs. Flexibility When you have cash you want to grow safely, two options dominate: certificates of deposit (CDs) and high-yield savings accounts (HYSAs). Both are FDIC-insured, both pay interest, and both are considered extremely low risk. The core difference comes down to a trade-off between earning a guaranteed rate and keeping your money accessible. A CD locks your money away for a set period in exchange for a fixed interest rate. A high-yield savings account lets you withdraw anytime but pays a variable rate that can change. Choosing between them depends on when you'll need the money, how interest rates are trending, and how much flexibility matters to you. ## How CDs Work When you open a CD, you deposit a lump sum for a specific term — commonly 3 months, 6 months, 1 year, 2 years, or 5 years. The bank pays you a fixed interest rate for the entire term. When the CD matures (reaches the end of its term), you get your original deposit plus all the interest earned. The interest rate is locked in on the day you open the CD. If rates drop the next month, yours stays the same. If rates rise, yours also stays the same — which is the downside. ### Early Withdrawal Penalties If you need your money before the CD matures, you'll pay an early withdrawal penalty. This is typically 3 to 6 months of interest for shorter-term CDs and 6 to 12 months for longer-term CDs. Some banks have even harsher penalties. The penalty can eat into your principal if you withdraw very early in the term. A few banks offer no-penalty CDs that let you withdraw early without a fee, but these typically pay lower rates than standard CDs. ### Minimum Deposits Many CDs require a minimum deposit, commonly $500 to $1,000. Some jumbo CDs require $100,000 but may offer slightly higher rates. Online banks tend to have lower minimums — some start at just $1. ## How High-Yield Savings Accounts Work A high-yield savings account works like a regular savings account but pays a significantly higher interest rate — typically offered by online banks that have lower overhead costs. You deposit money, earn interest (usually compounded daily and paid monthly), and can withdraw whenever you want. The critical difference from CDs: the rate is variable. The bank can change it at any time, and it will fluctuate with broader interest rate movements. When the Federal Reserve raises rates, HYSA rates tend to go up. When the Fed cuts rates, HYSA rates drop. ### Access and Limits You can typically make up to 6 withdrawals per month from a savings account (a former federal regulation that many banks still follow as policy). Transfers to a linked checking account usually take 1-3 business days at online banks, though some offer instant transfers. ## Rate Comparison in the Current Environment As of early 2026, the interest rate landscape looks like this: - **Top HYSA rates**: 4.00% to 4.50% APY - **1-year CD rates**: 4.25% to 4.75% APY - **2-year CD rates**: 4.00% to 4.50% APY - **5-year CD rates**: 3.75% to 4.25% APY The gap between CDs and HYSAs is relatively narrow right now. When rates are stable or expected to decline, CDs become more attractive because they lock in today's rate. When rates are rising, HYSAs are more appealing because their variable rate moves up with the market. ## The CD Laddering Strategy CD laddering is a strategy that gives you the higher rates of longer-term CDs while maintaining regular access to portions of your money. Here's how it works: Take $10,000 and split it into equal parts across CDs with staggered maturity dates: - $2,500 in a 1-year CD - $2,500 in a 2-year CD - $2,500 in a 3-year CD - $2,500 in a 4-year CD Every year, one CD matures. You can use that money if needed or reinvest it in a new 4-year CD at the back of the ladder. After the first year, you have a CD maturing every 12 months while most of your money earns longer-term rates. Laddering smooths out interest rate risk. If rates drop, only one-quarter of your CDs renew at the lower rate. If rates rise, you can reinvest maturing CDs at the new higher rate. ## When CDs Make More Sense CDs are the better choice when: - **You have a specific savings goal with a known timeline** — saving for a house down payment in 18 months, for example. A CD locks in your rate so you know exactly how much you'll have. - **Interest rates are expected to decline** — locking in today's rate protects you from future drops. - **You want zero temptation to spend** — the early withdrawal penalty acts as a psychological barrier against dipping into savings. - **You don't need the money before the term ends** — if you're confident about your timeline, the slightly higher rate is free money. ## When HYSAs Make More Sense High-yield savings accounts win when: - **You're building an emergency fund** — emergencies are unpredictable, so you need penalty-free access at all times. - **Interest rates are rising** — your variable rate moves up with the market, while CD holders are stuck at their locked-in rate. - **You're not sure when you'll need the money** — if your timeline is fuzzy, the flexibility of a savings account is worth the potentially small rate difference. - **You make regular deposits** — savings accounts let you add money anytime, while CDs are typically funded once at opening. ## Liquidity: The Deciding Factor For most people, liquidity is the deciding factor. If you can't comfortably say "I won't need this money for X months," stick with a HYSA. The rate difference between a top HYSA and a comparable CD is often just 0.25% to 0.50%. On a $10,000 balance, that's $25 to $50 per year — not enough to justify losing access to your money. On the other hand, if you have savings beyond your emergency fund that you're earmarking for a future expense, a CD ladder can squeeze out a bit more return with manageable access through staggered maturities. ## FDIC Coverage: Both Are Equally Safe Both CDs and HYSAs at FDIC-member banks are insured up to $250,000 per depositor, per institution, per ownership category. Your money is equally safe in either option. If you have more than $250,000, you can spread it across multiple banks or use different ownership categories (individual, joint, trust) to increase your total coverage. The safety of both options is their primary advantage over investments like stocks or bonds. You will never lose principal in an FDIC-insured CD or savings account. The only risk is that inflation might outpace your interest rate, eroding your purchasing power over time — but that risk applies equally to both.