When you think of savings accounts your thoughts could include all the different types of savings instruments. Two of these would be high yield certificates of deposit (CD) and high yield savings accounts. The question is how do you select which is the right savings vehicle for you?
There are many factors to consider because the two savings accounts are very different.
Certificates of Deposit (CDs)
CDs have been a reliable to save money for a very long time. Most banks offer them. They are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account, per bank.
The way CDs work is that when you have accumulated a stash of money that you won’t need to use for awhile, you may want to get more interest on that money than you could get in a savings account.
For example, one bank has a CD offering as follows:
- 24 month $5,000 CD yields 1.24%
- 36 month $5,000 CD yields 1.73%
- 60 month $5,000 CD yields 2.47%
You will only earn this money, however, if you keep it in the CD until the maturity date. You will be subject to early withdrawal penalties if you remove funds prior to then.
High Yield Savings Accounts
High yield savings accounts have vastly different features than CDs as a savings vehicle. For one thing, you can access money in an online savings account anytime you like. You can do that usually via online transfers, ATM cards or just by going to the bank and getting your funds.
They are called high yield because the interest rates are higher than on their traditional savings account brethren.
For example, one high yield savings account requires you to make a $1,500 deposit when you open the account. For three months, you will receive a 2.25% interest rate. After that, the rate will decrease to 1.51%.
So, while you do have some restrictions on how much money you have to maintain in a high yield savings account, you may be able to have fees waived and of course, you can access the money whenever you like.
When you are considering either a high yield savings account or a high yield CD, make sure you do a lot of comparing and contrasting. There are many, many accounts available to you not only in your community but with online offerings.