Certificate of Deposit (CD) vs. Savings Account: Which Is Better?

Andrew Secker, Preferred Banker, First Republic Bank
October 26, 2021

  • CDs require you to leave your money in the account for a specific amount of time in exchange for a fixed interest rate.
  • Savings accounts typically have variable interest rates.  Withdrawals from savings accounts are allowed, but usually with limitations.
  • The right option for you will depend on your unique circumstances, financial goals and how frequently you’ll need access to cash. 

There are lots of options when it comes to saving money, but not all deposit accounts function the same way. They can often differ greatly in value and conditions. While it may not seem like there’s a big difference between certificate of deposit (CD) accounts and savings accounts, the truth is there are significant pros and cons with each of them.

Making the choice between a CD and a savings account can depend on your financial situation, plans for the money in the account and how often you need to access funds. Here’s what you need to know to make the right choice.

What’s a savings account?

A savings account is a bank account that typically earns interest at a variable rate over time. These accounts are usually offered by banks and credit unions.

Savings accounts are mainly used for setting money aside for emergencies, future needs and savings goals. Unlike a checking account, savings accounts aren’t commonly used for daily spending.

What’s the average interest rate of a savings account?

According to the Federal Deposit Insurance Corporation (FDIC), as of the December 2022 monthly update, the national average interest rate for a traditional savings account (not including money market accounts) was 0.33%. Some banks market "high-yield savings accounts" that can earn you much more than that.

Advantages of a savings account

Typically all savings accounts earn interest at higher rates than what might be offered on a checking account. The more money you put into the account, the more interest you earn on your balance. Savings accounts are also a great way to store your cash while still having easy access to it. Consider some of the following benefits of having a savings account:

  • Flexibility: A savings account allows you the flexibility of keeping your cash liquid, so you can access it more frequently (though some accounts may have a limited number of transactions per month). Most accounts come with an ATM card, making it easy to withdraw money when you need it.
  • Earned interest: A savings account is also a financially savvy place to store your emergency funds. High-yield savings accounts provide access to these funds while still earning interest on your balance. This can translate into significant savings the more you have saved.
  • Security: The FDIC insures up to $250,000 per account owner, per insured bank for each ownership category. And if you open a savings account with a credit union, your money will typically be insured by the National Credit Union Administration (NCUA) up to the applicable limits. This means you can rest easy knowing that your money is secure up to a certain amount within your savings account.
  • No lock-in periods: You can add and withdraw funds with more flexibility with a savings account rather than keeping your money in your account for a set period of time.

Disadvantages of a savings account

There are also drawbacks to savings accounts. Here are a few considerations to keep in mind when opening a savings account:

  • Variable interest rates: With savings accounts, a variable annual percentage yield (APY) means the interest rate can change at any time due to market conditions. This can make it difficult to estimate how much you’ll earn in interest over time.
  • Extra fees: Some financial institutions may charge monthly fees for account holders to maintain a savings account. You might be able to avoid these fees depending on bank-specific factors, like your account balance, as well as any other accounts you might have open with the bank.

What’s a certificate of deposit (CD)?

Certificates of deposit are bank accounts where the account holder agrees to keep money in the account for a fixed period of time (known as the "term" of the account), in exchange for earning a fixed interest rate. Banks and other financial institutions offer several term lengths (e.g., 7 days, 1 month, 6 months, 12 months, etc.).

Advantages of a CD

There are several advantages to taking out a CD, such as:

  • Higher interest rates: CDs typically offer higher interest rates compared to traditional savings accounts. And you may be able to maximize your interest earnings by building a CD ladder.
  • Security: The FDIC insures up to $250,000 per account owner, per insured bank, up to applicable limits, just like it does for savings and other deposit accounts. If you open a CD with a credit union, your account will be NCUA insured.
  • Predictable returns: In contrast with traditional savings accounts, CDs offer predictable returns. A fixed interest rate locks in your rate of return over a specific amount of time.

Disadvantages of a CD

There are also a few potential downsides to opting for a CD. Here’s what to consider before you open a CD:

  • Early withdrawal penalties: The money in your CD is locked for a set term and can only be withdrawn at its maturity date. If you withdraw early, you may face significant penalties for doing so, with the exception being a liquid CD.
  • Requires proactive monitoring: If your CD term is longer than one month, your bank will let you know when your term is about to expire. Some banks may automatically roll over into a new CD under the same term. This would limit your ability to access your funds.

What are the differences between a CD and a savings account?

CDs and savings accounts share many similarities, such as being insured by the FDIC or NCUA up to applicable limits and their interest-bearing status. But when trying to choose between a CD and a savings account, it’s important you understand the main differences between the two.



Savings Accounts

Interest Rates

Fixed interest rate throughout the term of the CD

Variable interest rate that may fluctuate over time based on market conditions


Typically no monthly maintenance fees; however, early withdrawal penalties may apply.

Usually monthly maintenance fees if balance requirements are not met

Withdrawal Limits

If withdrawal is made before the maturity date, early withdrawal penalties may apply.

Some banks may have restrictions on the number and type of withdrawals allowed per statement cycle

Adding Funds

Funds can only be added at maturity

Typically no restrictions on additional deposits


With these differences in mind, consider which account type might make the most sense for you.

Reach Your Financial Goals

First Republic savings accounts can make it easier to reach your short- and long-term goals. With a variety of CD terms to choose from, you’ll have the options you need to help make the most of your money. 


Should I open a CD or a savings account?

If you’re trying to decide between a CD or a savings account, think about your specific financial goals.

If you’re looking for flexibility and are willing to earn a lower interest rate with more access to your funds, a savings account might be the right choice for you. If you’re looking to earn more interest and do not need access to your funds immediately, then a CD could be the right choice.

Here are a few additional factors to keep in mind when deciding which type of account type is best for you:

  • When to consider opening a savings account: A savings account is a simple and convenient option for most consumers. Consider storing your money in a savings account if you think you’ll need access to the money on a somewhat regular basis. Savings accounts are also great for those saving for a smaller or shorter-term goal.
  • When to consider opening a CD: Consider opening a CD if you do not need immediate access to your funds. A CD may be a better option if you saving for a long term goal. 

No matter which option you choose, the most important thing is to plan wisely. A good financial strategy often includes savings, where you can access your funds based on your needs. Keep in mind you can always choose to open both a CD and a savings account as each one can help grow your money.

How to open a CD or savings account

Most CD and savings accounts can be opened in-person or online with a brick-and-mortar bank, online bank or credit union. Just like any other bank account, you’ll likely need to provide personal and financial information, such as your Social Security number, government-issued ID, address and date of birth.

In some cases, a minimum balance will be required to open a CD or savings account. The minimum opening balance for a CD account may be considerably higher than that of a savings account, but some financial institutions offer CDs with no minimum deposit. Consult with your financial institution to determine their specific requirements.

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