CDs vs Savings Accounts Compared

By Jacqueline DeMarco · August 09, 2023 · 9 minute read

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CDs vs Savings Accounts Compared

Saving money is a good thing, but it’s important to find the right kind of account for your cash. Both savings accounts and certificates of deposit (CDs) can be a safe spot to keep your money, but they have differences. A savings account can be more accessible, meaning you can typically withdraw funds at will, while with a CD, you are supposed to let your money sit for an agreed-upon period of time. Also, interest rates may vary.

Depending on your needs and preferences, you may discover that one option is a better fit for you than another. To help you make a decision, read on for details on what these accounts offer and how they differ. Once you know the pros and cons of each, you will likely be better prepared to make a decision.

Certificate of Deposit vs. Savings Accounts

To understand the difference between a CD and a savings account, it’s a good idea to first learn how each type of account works.

What Is a Certificate of Deposit (CD)?

A certificate of deposit (CD) is a specific type of savings account that pays interest. You agree to keep the money on deposit for a specific term, which can range from a few months to several years, and you are promised a specific interest rate (usually but not always a fixed rate). CDs are also known as time deposits for this reason.

The longer the term you choose, the higher the interest rate in many cases. You may also find a promotional CD with a higher than usual rate.

As noted above, you may find some variable rate CDs offered. With these, the interest can fluctuate with the market.

CDs are considered to be a very 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.

How Does a CD Work?

Here’s how a certificate of deposit 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.

You, the CD holder, will be aware of exactly what this payout will be when depositing 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. Or you can roll it over into a new CD.

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 or NCUA vs FDIC insures the money under similar guidelines.

How Does a Savings Account Work?

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.

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3 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.

1. Insured

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.

2. Earns Interest

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

3. 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.

Differences Between a CD and Savings Account

Of course, there are some key differences between these accounts worth understanding. Knowing these points could help you decide between a high-yield savings account vs. a CD.

Accessibility

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 or even unlimited withdrawals.

Amount of Interest Earned

While savings accounts do generally earn interest on the money stored in them, and high-yield accounts (typically offered by online banks), CDs may earn more interest. Comparison-shop to see what’s offered.

Certificate of Deposit vs Savings Account

Here, in chart form, is a summary of how CDs and savings accounts are alike and how they differ.

Similarities

Differences

Insured Accessibility
Earns interest Amount of interest earned
Good way to save money

When to Use a CD Instead of a Savings Account

It can be hard to decide between a CD vs. a savings account. A CD is a good fit if you have money you don’t need to access anytime soon and if you can earn a higher interest rate by agreeing not to 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 or when saving up for a short-term financial goal.

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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 process typically involves sharing your ID (more on that in a moment), proof of address, and other credentials.

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 your photo (driver’s license, U.S. passport, military identification, etc.)

•  A bill with your name and address on it

•  Birth certificate.

Recommended: Different Types of High-Interest Accounts to Know

Opening a Savings Account with SoFi

If a savings account seems like a good option to you, SoFi might be the right bank.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


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FAQ

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 can find a higher interest rate vs. a savings account, 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 can provide a better interest rate than a savings account, but it pays to research exactly what is being offered. 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.

Is a certificate of deposit safer than a savings account?

Both CDs and savings accounts are insured by either the FDIC or NCUA, depending on which kind of financial institution you make your deposit.

How long should you keep money in a CD?

CDs are offered with different terms, from a few months to a number of years. Typically, you will earn a higher interest rate with a longer CD. However, it’s important to consider how long you can comfortably tie up your money. If you withdraw funds before the CD’s term of deposit is up, you may face penalties.


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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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