CD vs. High-Yield Savings Account: What Are The Differences?

You've built up some savings, but where to put the money? Certificates of Deposit (CDs) and high-yield savings accounts can help your money to grow at a higher interest rate than a traditional savings account. However, each has advantages and drawbacks. And depending on your needs, those differences may impact your choice.

Here's what to know about how CDs and high-yield savings accounts work and why you might prefer one over the other.

What is a CD?

A Certificate of Deposit is a deposit account with a pre-determined fixed interest rate over a specified period, called a maturity date. Depending on the financial institution, the term can run from a few days to ten years or more. Put in the funds, and once the CD hits the maturity date, you're guaranteed the money plus interest.

A CD may offer a higher interest rate than a standard savings account. However, those higher rates come in exchange for reduced flexibility. Once you've moved savings into a CD account, the money can't be withdrawn until the maturity date. A penalty may be associated if you need to access the funds sooner. And those fees may offset any interest earned during the period.

What are the Advantages of CDs?

There are several benefits of CDs that make them an attractive option for savings, including:

  • Higher interest rates: Certificate of deposit accounts may offer higher interest rates compared to savings accounts, especially for longer terms. However, compare the rate before making a decision.
  • Fixed rates: Once you've locked the rate on a CD, it's fixed. That means your savings rate stays the same regardless of whether rates go down or up, providing some stability from market or economic fluctuations.
  • Security: CDs are protected by the Federal Deposit Insurance Corporation (FDIC) and offer a guaranteed return at maturity[1]. For those with lower risk tolerances, it's a way to earn interest and diversify your portfolio without additional risk.

What are the Disadvantages of CDs?

A CD may be an excellent choice for some. However, some disadvantages make this type of savings account not a fit for everyone.

  • Lack of flexibility: Once the money goes into a CD, you can't make adjustments or withdraw the funds prior to maturity.
  • Limited liquidity: If there's an emergency and you need funds immediately, getting the money is more difficult than savings or high-yield savings accounts.
  • Minimum deposits: Some financial institutions require minimum deposits for CDs. So options may be out of reach, depending on the amount and your available savings.
  • Missed opportunities: If there are changes in the market or interest rates fall, you may earn less than in a high-yield savings or investment account.

What is a High-Yield Savings Account?

A high-yield savings account works like a traditional one but can come with a higher interest rate. While in the past, only a handful of financial institutions offered high-yield savings accounts, today, most banks offer these accounts as their primary savings accounts. Putting your money in a high-yield savings account can help it grow. However, unlike with a CD, the rates on a high-yield savings account aren't fixed; they may go up or down.

High-yield savings accounts offer more flexibility than a CD since you can withdraw funds anytime. However, your bank may limit the number of transactions every month. The FDIC also protects these accounts up to the allowable limit[2].

What are the Advantages of High-Yield Savings Accounts?

High-yield savings accounts have some attractive benefits compared to both regular savings accounts and CDs, including:

  • Higher interest rates: As with CDs, high-yield savings accounts may have much higher interest rates than savings accounts.
  • Accessibility: With a high-yield savings account, you can access funds whenever needed, through an ATM card or by transferring money to another bank account.
  • Security and low-risk: Like CDs, the FDIC protects high-yield savings accounts and offers a low-risk way to grow your savings.

What are the Disadvantages of High-Yield Savings Accounts?

There are also some disadvantages associated with high-yield savings accounts. You may find some of these make CDs a more attractive option for your needs.

  • Changing rates: Unlike with a CD, the rates on a high-yield savings account can change over time. While that may benefit you when the rates go up, it may mean missing out on potential growth when they're down.
  • Missed opportunities: Keeping funds in a high-yield savings account may mean not taking advantage of higher returns on other potential investment opportunities.
  • Minimum balance requirements and fees: Some high-yield savings accounts want you to keep a minimum balance to earn a higher interest rate. You also may have to pay additional fees or service charges.

Comparing CD vs. High-Yield Savings Accounts

When deciding what to do with your savings, take some time to review the key considerations. Here are some of the main points to consider for each: 

  CDs High-Yield Savings Accounts
Interest Rates Fixed interest rate for the term Rates may change over time
FDIC Insured Yes Yes
Access to Funds Limited access until maturity Flexible access, withdrawals and transfers allowed
Penalty for Early Withdrawal Yes No, unless over specified monthly transaction limits
Liquidity Lower liquidity Higher liquidity
Investment Term Fixed term No specific term
Risk Low risk Low risk


How To Choose: CD vs. High-Yield Savings Accounts

While both CDs and high-yield savings accounts have a lot of benefits, what may work best comes down to your needs and goals.

A CD may be a better fit if:

  • You know you won't need the money for the CD's term.
  • You want to lock in higher interest rates.
  • You have the funds available to meet minimum deposits.

A high-yield savings account may be a better fit if:

  • You may need to access the money, for instance, if it's your emergency fund.
  • You aren't worried about changing rates, or they won't impact your savings goals.
  • You can get higher rates than on a CD. 

Start Your Savings Journey Today

You've saved your hard-earned money and would like to see it grow. That's where a CD or high-yield savings account can help you take advantage of higher interest rates with low risk. Now that you know the difference between them, it's time to consider your options.

Learn more about PNC's Certificate of Deposits  and High-Yield Savings Account.