Certificate of deposit vs. savings account: Which is right for you?

When it comes to saving money, experts can all agree on one thing: It’s a good idea. For one, savers are better prepared to handle emergencies and more likely to achieve long-term financial goals. Plus, taking steps toward financial security and long-term goals can reduce stress—and who couldn’t use some better sleep at night? 

Once you decide to save, you have to choose where to put your money. For long-term goals like retirement, you might explore opening a Traditional or Roth IRA, which you would ideally not tap into until you retire. But what about money you might need sooner? Two savings options to consider are certificates of deposit (CDs) and savings accounts. 

“Savings accounts and CDs both offer a safe place for you to put your money where it can earn interest,” says Chanelle Bessette, personal finance writer. (That safety is thanks to FDIC insurance, which protects depositors of FDIC-insured banks up to $250,000 per depositor, per insured bank, for each account ownership category.) But what are the differences between CDs and savings accounts? 

“The main difference between the two is that savings accounts allow you to access your money at any time, but CDs are typically locked up for a term length, unless you want to pay a penalty.”

There are more distinctions between these options as well—plus some considerations you’ll want to keep in mind as you weigh the benefits of certificates of deposit vs. savings accounts.

Certificates of deposit

CDs offer some clear benefits, including interest, security, and predictability. Here’s how CDs work: When you open a CD, the bank or credit union offers a guaranteed return (“the rate”), and in exchange, you agree not to withdraw your money for a certain amount of time (“the term”). Let’s look at some of the key questions about CDs, including, “How long does a certificate of deposit last?” and “Are certificates of deposit FDIC-insured?”

Choose your term, lock in your rate, and watch your CD grow

Learn more

Discover Bank, Member FDIC

What is the interest rate on a CD?

A CD pays a set interest rate when you agree to leave your money with a financial institution for a certain term. CD rates can vary depending on your financial institution, the term of the CD, and the interest rate environment. Typically, if you are willing to put more money into a CD or open one with a longer term, you can expect a higher rate of interest, Bessette says. 

How long does a certificate of deposit term last?

CDs aren’t designed for money you may need today or this week. Typically, CD terms range from one month up to five years. Some financial institutions offer even longer CDs. For example, Discover offers CDs with terms of up to 10 years. 

One way to manage CD terms is to use a CD ladder savings strategy, Bessette says. With a CD ladder, you open CDs with varying terms—say one, two, and three years. That way you get to enjoy some higher rates of longer-term CDs without locking up all of your money for the full time period. When each CD matures, you have the option to roll the money into a new, longer-term CD. 

Are certificates of deposit FDIC-insured? 

Bessette points out that one of the big pluses for savers who use CDs is security. The rate of return is set, and the CDs offered by banks may be insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per depositor, per insured bank, per deposit ownership category. (Discover Bank is an FDIC Member.)

What are some limitations of CDs?

While there are many benefits of CDs, they do have limits. Notably, after you buy a CD, you are committed for the term of the product. If you pull your money out of a CD before the end of the term, you will likely be charged a penalty. That’s why Bessette thinks CDs aren’t great places to store money that you may need for day-to-day expenses. If you’re looking for accounts with more flexibility, explore money market accounts and checking accounts, which offer easier access to your money. 

CDs can also require minimum deposits. However, there is no minimum deposit required to open a Discover CD. You have 45 days after account opening to fund the Discover CD. Please note that minimum opening deposit requirements can vary across financial institutions.

When should you consider a CD?

A CD could be the right savings option for you if:

You’re saving for a specific goal. 

Because CDs have a set term, you can use them to save for a specific goal, Bessette says. Are you saving for a wedding, a vacation, or a new home? A CD could help you get there.

You’re tempted to spend. 

Once you open a CD, spending that money isn’t as easy as spending money from a savings or checking account. That inconvenience can actually be a benefit, Bessette says, if you’re afraid you’ll dip into your savings. 

You want higher rates with very little risk. 

Often, CDs pay higher interest rates than savings accounts, Bessette says. If you want higher rates but don’t want to face the risks inherent in the stock market or with other assets, a CD ladder is worth considering. 

Some high-yield savings accounts do offer rates that can compete with CD rates, however. So how do savings accounts compare to CDs? 

Savings accounts

A savings account is a bank account that offers interest on deposits. Savings accounts differ from checking accounts in a few ways because savings accounts are designed for money you don’t need for day-to-day expenses. But what about certificates of deposit vs. savings accounts? Let’s look at some of the key questions about savings accounts, including, “What is the interest rate on a savings accounts?” and “Are online savings accounts FDIC-insured?” 

What is the interest rate on a savings account? 

When you make a deposit in a savings account, the financial institution pays you interest. As of early 2024, the average interest rate on a savings account was 0.58%, according to Bankrate. But many banks were offering savings accounts with a higher interest rate, without any fees or minimum deposit, such as the Discover^® Online Savings Account. Keep in mind that savings account rates change over time, so they are not as predictable as CDs once you’ve locked in a CD rate. 

What are the benefits of a savings account? 

Why open a savings account? There are plenty of good reasons. If you have money you don’t need for day-to-day expenses, a savings account offers the option to earn interest on your deposits. Bessette says that the big benefit of savings accounts compared to CDs is that savings accounts have no set term, so you can access your money if you need it. Unlike when it’s in the stock market, your money can’t plummet in value when it’s in a savings account—making a savings account a low-risk place to park your cash. 

Are online savings accounts FDIC-insured?

Online savings accounts offered by banks may be protected by FDIC insurance. As with CDs, the money in your account is protected if something should happen to the financial institution that holds the account. As a result, savings accounts are one of the lowest-risk places to keep your money. 

What are the limitations of savings accounts? 

Savings accounts offer interest, safety, and convenience, but Bessette says they aren’t the right solution for all your money. For one thing, these accounts may not come with check writing privileges or debit cards, which means they’re probably not practical for day-to-day spending needs. The interest rate changes over time, and you don’t know when savings account interest rates will go up or down, so they can be less predictable than a CD. 

When should you consider a savings account?

Savings accounts are a safe way to make money from your savings. You may want to open a savings account if:

You have—or are starting—an emergency fund. 

Saving enough money to create an emergency fund that covers three to six months of expenses is a key step toward financial independence. With a savings account, you can earn interest while maintaining access to your emergency fund, Bessette says. 

You are saving regularly for short-term goals. 

If you want to make regular contributions for a short-term goal, say setting aside part of your weekly pay for some furniture you plan to buy in a few months, savings accounts allow you to make deposits on your schedule and withdraw funds when you are ready. Bessette says that some banks allow you to divide your savings account into separate accounts tied to specific goals.  

You value flexibility. 

The rates for savings accounts are typically a little lower than those of CDs, but savings accounts give you easier access to your cash. If you value flexibility, that may make a savings account a better option for you, Bessette says. 

Certificates of deposit vs. savings accounts: Which is better for you? 

Saving is a fundamental part of a healthy financial life. When it comes to choosing where to put your savings, both CDs and savings accounts offer valuable features. How do you choose?

“The main difference between a CD and a savings account is access to your funds,” says Bessette, noting that savers can use both kinds of accounts to reach their financial goals. “Both are good options for earning interest on your savings, so it comes down to which structure works best for you. You can even use both in tandem as you work to achieve your goals.”

Now that you understand the basics of CDs and savings accounts, learn more about Discover CDs and Discover Online Savings Accounts. 

Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.