Savings Account or CD: What’s Smarter Right Now?

Opportunities to earn real money on your savings are better than they've been in years, but the window could soon be closing

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If you're fortunate enough to have money for savings these days, you've got a chance to earn a record-setting interest rate, whether it's in a savings account, certificate of deposit, or another interest-earning deposit account.

The Federal Reserve has raised interest rates a remarkable nine times over the last 13 months, causing consumer deposit rates to skyrocket. National rate averages have hit their highest marks since the Federal Deposit Insurance Corporation (FDIC) started tracking rates in 2009.

If you shop around, you can do especially well, as today's best high-yield savings accounts and certificates of deposits (CDs) pay 5% or better, with dozens of options in the high 4% range as well.

Unfortunately, this party can't last forever. The current forecast is that we'll likely see just one more small increase from the Fed, likely followed by a rate plateau and perhaps even a decline later this year. If that happens, it means we're at or soon approaching peak deposit rates, making now an excellent time to decide where to stash your cash for maximum return.

Key Takeaways

  • Deposit rates have reached record highs due to the Federal Reserve's rate-hiking campaign of the last 13 months.
  • You can currently earn 5% or better from the highest-paying savings accounts and certificates of deposit.
  • If rates soon plateau and eventually begin to fall, it's smart to decide now what you can manage to lock away at one of today's premium rates.

Comparing Savings Account and CD Rates

Earning a good return on money you have in the bank can be done with two broad categories of accounts. First, there are liquid accounts, which allow you to deposit and withdraw your funds more or less anytime you want. Think savings, checking, and money market accounts.

Second are time deposit accounts, most commonly called certificates of deposit (CDs), which involve an agreement between you and the bank: You agree to keep your funds on deposit without withdrawal for a specified number of months or years, and the bank or credit union agrees to pay you a fixed interest rate that's locked for the duration of the term. In general, CDs offer better rates than liquid accounts, to compensate you for giving up full access to the money.

But how different are the rates between these options right now, and what's a smart decision given the current interest rate environment? For more than a year, rates have been rising, pushed by the Federal Reserve's continued rate hikes. And that has led to record interest rate levels for both savings accounts and CDs. Since you can now earn a very attractive 5% on the best high-yield savings account, that can make a more rigid CD look less appealing.

Today's Best Savings Account and CD Rates
Account Type Today's Top Nationwide Rate FDIC national average
High-yield savings account 5.02% APY 0.39% APY
3-month CD  5.00% APY  0.78% APY
6-month CD  5.25% APY  1.03% APY
1-year CD 5.25% APY 1.54% APY
2-year CD 5.35% APY 1.43% APY
3-year CD 5.00% APY 1.34% APY
4-year CD 4.73% APY 1.29% APY
5-year CD 4.68% APY 1.37% APY
To view the top 15–20 nationwide rates in any category, click on the desired account type in the left column above. Source: Top nationwide rates from Investopedia daily rate tracking. National averages from FDIC, April 18, 2023.

But the rate environment is shifting, and as a result, the annual percentage yield (APY) you can earn right now is only part of the consideration. With it widely expected that the federal funds rate is going to max out after just another quarter-point increase on May 3, we're likely looking at a current or soon-on-the-horizon rate peak. Rates are expected to plateau and eventually drop after that. Therefore, what you think you'll be able to earn on your savings in the future is also important.

If the prediction about sinking rates comes to fruition, you'll be much better served by a CD in which your rate from today's record levels is locked in, and probably the longer the better since it might be quite some time before the Federal Reserve implements another rate hike.

What About Jumbo CDs?

If you have a deposit of at least $100,000 or more, you could consider a jumbo CD. However, Investopedia's tracking of the best CD rates shows that only occasionally do these certificates pay a better rate than the best standard CD, so shop all the options.

Deciding Whether to Lock It or Keep It Liquid

Comparing rates should certainly be part of your decision equation. Yes, you can now earn as much or more with a high-yield savings account as on a 3-month CD, or a certificate of 4 or 5 years. And you can earn almost as much—within about a quarter percentage point—as what you'd earn on most other CD terms. On the flip side, if you sock some of your savings away in a CD, you'll do better down the road if the Fed lowers rates.

More critical to consider than all of that is what you can afford to part with now, and then live without for some period of time. Everyone's financial situations is different, and it might be that you don't know if you'll need your savings in the coming year. In contrast, maybe you're saving for a big purchase that you know is more than a year away. Or maybe you're stashing cash for capital preservation of your retirement funds.

Though no one can predictably forecast interest rates and moves by the Fed, all signs are currently pointing toward an upcoming decreasing rate environment, which means you'd do well to deposit as much of your cash savings as you can live without into a certificate of deposit. You can then leave a lesser amount in liquid savings, understanding that while the rate you'll earn there will probably start dropping within months, you'll retain access to the funds in case you need them.

High-Yield Savings Accounts  Certificates of Deposit 
Pros • Withdraw or close at any time (though many banks impose a limit of six withdrawals per month)
• Rates nearly as good as CDs right now
• Higher rates than savings accounts usually
• Fixed rate for the entire CD term is great when rates are falling.
• Early withdrawal penalties may thwart the temptation to spend
Cons • Don't earn quite as much as top-paying CDs
• APY can fall any time without notice.
• Easier withdrawals mean less protection against unplanned spending
• If you need the money sooner than expected, you'll pay an early withdrawal penalty.
• Most CDs don't let you add more to the account
• Fixed rate could cost you in rising rate environment

If you need to withdraw the funds from a CD early, you can, but it comes at a price. It's called an early withdrawal penalty and each bank or credit union has their own policy for how that's calculated. Typically, you forfeit a number of months of interest, which can range from three months' worth to years' worth. You definitely should always investigate the early withdrawal penalty policy of CDs you're considering before landing on a final choice, so that other things being equal or close, you can choose the one with the milder penalty.

Money Market Accounts and High-Yield Checking

Besides high-yield savings accounts and CDs, many banks offer money market accounts, which are very similar to savings accounts but typically offer the additional feature of letting you write checks. Traditionally, money market accounts offered higher interest rates than savings accounts while requiring a higher minimum balance. But since the advent of online banks and the proliferation of high-yield savings accounts, savings rates are very competitive if not better than money market rates. It's worth investigating current money market rates, especially if you prefer to have check-writing privileges.

Currently, the average money market rate is 0.57%, which is more than the average savings rate (0.39%) but not as much as the average 3-month CD rate (0.78%).

Another option available at some banks and credit unions is a high-yield checking account, sometimes called rewards checking. These accounts can pay a very competitive interest rate in exchange for you meeting certain transactional requirements. Usually this means you're required to make a minimum number of debit card transactions. Meet the quota for the month and you'll earn the high-yield rate. Miss it and you earn a nominal, non-competitive rate.

For example, Consumers Credit Union's Rewards Checking offers 5% APY on balances up to $10,000, but you'll need to make at least 12 debit card transactions a month, deposit at least $500 a month via direct deposit, ACH, or mobile deposit, and spend $1,000 or more on the CCU Visa credit card.

When deposit rates were lower, high-yield checking accounts offered a unique opportunity to earn a much higher rate if you were willing to jump through the required hoops. But now that savings account rates have surged, many high-yield checking rates have not kept pace. It's possible that when the Fed rate starts to decline, savings account rates will come down quickly, while high-yield checking accounts may retain their higher rates for a longer period.

Rate Collection Methodology Disclosure

Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs and savings accounts to customers nationwide, and determines daily rankings of the top-paying accounts. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the account's minimum initial deposit must not exceed $25,000.

Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

Article Sources
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  1. Federal Reserve. "Open Market Operations."

  2. Federal Deposit Insurance Corporation. National Rates and Rate Caps.

  3. CME Group. CME FedWatch Tool.