How to Choose Between a CD or High-Yield Savings Account

CDs usually offer higher rates, but have less liquidity than high-yield savings accounts.

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When you have extra cash, leaving it in your checking account might make you feel like you've got a big cushion, but it won't earn you much interest. You don't have to take on additional risk, like stocks or mutual funds, to get a better return. Instead, opening a high-yield savings account or a certificate of deposit lets you rack up some extra interest. Which account is best for you depends on your personal circumstances.

Interest Rate Comparison

Overall, CDs offer higher interest rates than high-yield savings account, especially when you commit a large amount to a long-term CD. CDs have different terms, ranging from a week to a decade or more, and the longer you promise to leave your money in the CD, the larger your interest rate. High-yield savings accounts typically have lower rates, but may also offer higher rates if you keep a higher average account balance.

Access to Funds

If you're planning to use the money as an emergency fund, a high-yield savings account offers much better liquidity. With a CD, you can't take your money out without a substantial penalty before it matures. If you have to take an early withdrawal, it could cost you several months worth of interest. With a high-yield savings account, you can withdraw your money as you need it without having any taken away due to withdrawal penalties.

Interest Rate Changes

A CD offers the security of a fixed interest rate for the term of the investment. For example, if you take out a five-year CD at 4 percent and interest rates drop to 2 percent, you still get paid 4 percent for the rest of the term. Of course, the downside is that if interest rates rise to 6 percent, you're stuck earning just 4 percent. With a high-yield savings account, your rate fluctuates with the market. So, when interest rates go up, you'll earn more interest. But, when interest rates drop, your payments go down, too.


Both high-yield savings account and CDs are fully covered by the Federal Deposit Insurance Corporation, so you don't need to worry about one being more safe than the other in the event of your bank going out of business. As of 2013, your first $250,000 per bank is covered. For example, if you have $250,000 in a CD at one bank and $250,000 in a high-yield savings account in another, both accounts are fully covered.