Certificate of Deposit vs Savings Account: What You Should Know

By Jacqueline DeMarco · March 22, 2022 · 8 minute read

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Certificate of Deposit vs Savings Account: What You Should Know

If you’re looking to stash some cash, it’s important to know that a certificate of deposit and a savings account are similar, but not the same thing! Both are probably a big improvement over keeping your hard-earned money tucked in a drawer at home, as they keep your money safe and grow it. But factors like accessibility and interest rates may differ. Depending on your goals and needs, you may find that either a CD or savings account is the right fit.

Keep reading for more insight into how a CD vs a savings account compares. This intel will help you find the right financial vehicle for your money.

Certificate of Deposit vs. Savings Accounts

What Is a Certificate of Deposit (CD)?

A certificate of deposit (CD) is a specific type of savings account that pays interest. How it works: You agree that you will leave the money in the account for a set period of time such as six months or three years. In exchange for locking up your funds in the account for that extended period of time, the bank issuing the CD will pay out a certain amount of interest. (Typically, the interest rate is fixed, although there are some CDs with variable interest available.) You, the CD holder, will be aware of exactly what this payout will be when they deposit funds into the CD if it comes with a fixed interest rate. Once the agreed upon period of time is over, you can get your original deposit back in addition to the interest you’ve earned throughout the CD’s term.

CDs are considered to be a really safe savings option if the CD is set up through a federally insured bank. If a bank has FDIC insurance, you will have up to $250,000 in insurance covering their accounts. That means even if the bank went out of business, you will get your money back as long as the amount doesn’t surpass $250,000.

The downside of CDs is that you basically shouldn’t touch your money for an extended period of time. This is an issue in terms of access. There are some no penalty CDs on the market that don’t charge a CD for pulling money out early. However, typically there are fees involved if you want to remove the funds before the period of time to which you committed. What’s more, when you open a CD, you risk inflation rising faster than the interest you earn on your money.

What Is a Savings Account?

A savings account, which you can open at a bank, credit union, or other financial institution, is a place where you can save money without locking it away for an extended period of time. A savings account is a good fit for money you want to protect and grow while still being able to access it — say, for an emergency fund or a down payment for a car you plan to buy in the next few months.

Similar to investing in a CD, savings accounts generate interest but generally at a lower rate. It’s possible to find a high-yield savings account at some financial institutions (most often online banks) that come with a higher interest rate than traditional savings accounts.

Again, it’s wise to choose a savings account with FDIC insurance to protect the funds in the savings account. If the savings account is held at a credit union instead of a bank, then the National Credit Union Administration (NCUA) insures the money under the same guidelines as the FDIC.

Savings accounts allow for more withdrawals than a CD (which allows none until the CD matures), but you can typically only do six withdrawals from a savings account per month. There has, however, been some flexibility with this guideline (known as the Federal Reserve’s Regulation D); check your particular financial institution for specifics.

Someone might put money in savings to:

•   Save money for a financial goal or emergencies

•   Keep their money safe

•   To separate the money they want to save from the money they want to spend

•   To earn interest and grow their savings

Recommended: Different Types of High Interest Accounts to Know

Similarities Between a CD and Savings Account

If you’ve ever thought of a CD and a savings account being the same thing, there’s a good reason why: There are a few similarities between them.


Typically, it’s not hard to find a CD or savings account that is insured by either the FDIC or the National Credit Union Administration (NCUA) which helps protect the money in those savings vehicles.

Earns Interest

Both CDs and savings accounts earn interest on the money deposited into them.

Good Ways to Save Money

You know that saying: Out of sight, out of mind. By putting money into a CD or savings account, you may find it easier to save money and resist the temptation to spend it. Once it’s deposited, you know you can’t touch it without paying a penalty.

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Differences Between a CD and Savings Account

Of course, there are some key differences between these accounts worth understanding.


With a CD, you can’t remove your money until the date of maturity without being fined. With a savings account, you can usually make up to six withdrawals a month.

Amount of Interest Earned

While savings accounts do generally earn interest on the money stored in them, CDs typically earn considerably more interest.

Certificate of Deposit vs Savings Account



•   Insured

•   Earns interest

•   Good way to save money

•   Accessibility

•   Amount of interest earned

When to Use a CD Instead of a Savings Account

It can be hard to decide between a CD and a savings account. A CD is a good fit if you have money you don’t need to access anytime soon and want to earn a higher interest rate since you won’t tap those funds for a while. For instance, let’s say you got a bonus at work (lucky you!) and aren’t quite sure what you want to do with it – but you do know you don’t want to fritter it away. Putting it in a CD will keep it safe and earning interest, while you decide how you might want to use it in the future.

When to Use a Savings Account instead of a CD

Generally, a savings account can be a better option if you need your money to be easily accessible in the near future. That’s why a savings account is a good place to store an emergency fund.

How to Open a CD

Both banks and credit unions offer CDs. To open a CD, you can choose a financial institution to open your CD at, pick the type and term of CD you want, and then decide how often you want to collect your interest payments (monthly or annually). The final step will be to fund the CD: That happens by transferring the money online, via a phone transfer, or by mailing a check.

How to Open a Savings Account

The first step in opening a savings account is to select a financial institution. Unless you already have some sort of account at the institution, you will likely have to provide the following information in order to complete the process:

•   Name

•   Date of birth

•   Address

•   Identification number (Social Security number, Individual Taxpayer Identification Number, passport number and country of issuance, alien identification card number, etc.)

•   Proof of a U.S. or state government issued identification card with their photo (driver’s license, U.S. passport, military identification, etc.)

•   A bill with their name and address on it

•   Birth certificate

The Takeaway

A saving account and a certificate of deposit share a few features: Both are financial vehicles that allow you to safely park your money and earn interest. However, they do differ in a couple of key ways. With a CD, you agree to park your funds (no withdrawals!) for a period of time, and will probably be rewarded with a higher interest rate. A savings account, on the other hand, will allow you greater access to your funds for what is usually a somewhat lower interest rate. When it comes to deciding which account to select, remember: There’s no right or wrong answer — only the kind of account that suits your particular needs.

Better Banking with SoFi

If you want to stash some cash in savings and give your banking life a refresh, we are here for you! With a high interest bank account from SoFi, eligible accounts earn a competitive APY, plus you won’t pay any account or overdraft fees. And those are just a few of the benefits.

Better banking is here with up to 4.20% APY on SoFi Checking and Savings.


Is a certificate of deposit the same as a savings account?

No, a certificate of deposit (CD) is not the same thing as a savings account. Money placed in a CD is not easily accessible like a savings account; you agree not to touch it for a period of time, usually from six months to a few years.

Is a certificate of deposit better than a savings account?

That depends on your unique financial needs. If you have money you don’t need to access anytime soon and want to earn a higher rate of interest on it, then a CD is likely a better fit. If, however, you need to be able to access your money and make withdrawals, a savings account will probably better suit you.

Does a certificate of deposit give you better interest than a savings account?

In general, a CD provides a better interest rate than a savings account. That being said, it’s worth comparing the difference in those interest rates before making a decision. It’s possible that a CD’s interest rate might not be high enough to outweigh the downside of not being able to access your funds the way you can with a savings account.

Photo credit: iStock/Moyo Studio

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