A First Foundation Blog

CD or Savings Account: What’s Right for Me?

| 12/10/20 8:30 AM
3 minute read

CDs may offer higher interest rates, but savings accounts can be more flexible.

If you’re looking for a safe place to store your money while earning interest, you might be weighing the benefits of a savings account or a certificate of deposit (CD). At First Foundation Bank, we believe your money should work for you—and we’re here to help you find the best savings vehicle to meet your needs.

Both savings accounts and CDs are secure and pay interest, but there are some key differences to consider when choosing between them.

CDs typically offer better interest rates but lower accessibility…

A CD is a type of deposit account that typically offers a higher interest rate than a traditional savings account. In return, customers agree to leave their money in the account for a predetermined amount of time, known as the “term.” The bank may also require that you have at least a certain amount of money to open an account.

Most CDs offer a guaranteed interest rate that won’t change over the term of the CD. A fixed interest rate allows you to know exactly how much you’ll earn over the life of the CD. The downside is that if interest rates rise during that time, you could be missing out on potential earnings.

…and penalties

CD terms typically range from three months to five years. The longer the term, the higher the interest rate they typically offer.

Withdrawing your money before the end of the term can result in early withdrawal penalties. These penalties vary by bank and are typically calculated based on the amount of interest the CD has earned or would have earned over a certain time period.

Savings accounts offer flexibility… 

A savings account allows you to make regular deposits and withdrawals, though there may be limits on the number of withdrawals, while earning interest on your balance. Savings accounts are especially good places to build emergency funds, because they offer the ability to withdraw your cash quickly if you have an unexpected expense, such as a car repair or medical bill.

…but often with lower interest

Savings accounts generally offer lower interest rates than you can get with a CD. However, some types of savings accounts may also offer greater returns. A high-yield online savings account, for example, may give you a better return than a traditional savings account, though it may have minimum balance requirements or additional withdrawal limitations. Most traditional savings accounts have very low minimum balance requirements or none at all. The great part about online savings accounts is their ease of account opening, several options to fund, and accessibility of funds. Most have the ability to link to external bank accounts and offer high transfer limits for accessing your cash fast.

How to choose between a savings account and a CD

The best choice for you will depend on your reasons for saving the money. Before selecting an account type, strategize on what your plans are for the money and when you will likely need to access it. We refer to this as determining “where you are in your financial journey.”

A CD is a good option if you don’t need your funds until a predictable future date. For example, if you want to use your savings for a down payment on a new home in a year and a half, you could maximize your interest rate earnings by keeping the money in a 12-month CD.

But if you’re not sure when you’ll need the money, or you think you might need to access it in an emergency situation, a savings account is likely a better choice.

Whether you’re considering a savings account or a CD, compare interest rates to make sure you’re getting the highest return possible. Our banking professionals are available to discuss your options and help you choose the best savings option for your needs.

Check out our Savings Goal Calculator to see what it will take to reach your goals.

First Foundation Bank
About the Author
First Foundation Bank
First Foundation Bank serves individuals and businesses at all stages of their financial journeys. In addition to the usual deposit and lending offerings, trust services, wealth planning, investment management, and philanthropy services are all available to clients as part of the First Foundation Inc. integrated platform. Read more