Certificate of Deposit vs. Savings Account

Saving money in a bank is a safe way to earn a modest return on income, and banks offer a variety of different deposit accounts. Savings accounts and certificates of deposit, or CDs, are common types of interest-bearing bank accounts that share the advantage of federal deposit insurance but differ in other ways. Savings accounts tend to offer lower interest rates but greater access to funds than certificates of deposit.


When you open a certificate of deposit account, the account has maturity date that can range from a few months to a few years. After you put your funds in the account, you usually cannot access your funds before the maturity date without incurring some sort of penalty such as forfeiting interest or paying a fee. On the other hand, you can generally access funds in a savings account whenever you please and you may even be able to link a savings account with a checking account to access funds with checks and debit cards.

Interest Rates

While certificates of deposit typically restrict access to funds, they tend to offer higher interest rates than traditional savings accounts. Banks use higher interest rates as a way to entice savers to commit to putting money into CDs. Certificate of deposit accounts also tend to pay a fixed interest rate until maturity. Fixed interest rates can allow CD savers to lock in at high interest rates even if interest rates in the economy fall over time. Of course, you could also find yourself locked into one interest rate as interest rates in the larger economy rise.


The Federal Deposit Insurance Corporation insures both savings accounts and CDs. Savers who open accounts at financial institutions that are FDIC members are granted federal deposit insurance of $250,000. If an FDIC insured bank goes out of business, savers are guaranteed to get at least $250,000 of their funds back. A different $250,000 limit applies to each bank, so it is possible to gain FDIC insurance on more than $250,000 by opening accounts at different institutions.


The details of financial accounts vary from one bank to another. Some banks may offer CDs that differ from the traditional model that penalizes savers for accessing funds before maturity. Similarly, some CDs offer variable interest rates that adjust based on current interest rates or that change based on the performance of the stock market.