Savings Account vs. CD: Which Is the Best Place for Your Savings Right Now?

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As of 2022, only 63% of Americans had enough savings to cover an unplanned $400 expense, per the Federal Reserve. Ideally, you’re not only part of that 63%, but in a position where you have a much larger bank account balance than $400. And if so, you need to find the right home for your money.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
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Click here to read our full review for free and apply in just 2 minutes. You may be torn between a savings account and a CD. And you should know that there are pros and cons to each. Let’s dive in so you can make an informed decision.Savings accounts: The pros and consThe nice thing about a savings account is that you get plenty of flexibility with your money. Need to take out $500 on a whim to cover a home repair? Your bank won’t penalize you for that. Plus, even though interest rates are starting to fall in the wake of the Federal Reserve’s benchmark rate cuts, savings accounts are still paying nicely. If you shop around for a great rate, you may be pleasantly surprised at how much interest your savings can earn you. Click here for a list of the best savings accounts today.On the flipside, you’ll typically earn a higher interest rate on a CD than a savings account. Also, with a CD, your interest rate is guaranteed for a specified period. That’s important, given that interest rates are likely to keep falling as the Fed continues to cut its benchmark rate.In fact, let’s say you’re looking at earning 4% in a savings account today vs. 4.5% in a 12-month CD. Not only is that 4.5% interest rate higher to begin with, but it’s yours to enjoy for a full year. Your savings account’s rate might drop to 3.8% in November, 3.5% in December, and so forth. We just don’t know. CDs: The pros and consAlthough it’s gotten harder to find 5% CDs these days, many CDs are paying close to that. Click here for a list of the best CD rates available today.If you put $5,000 into a 12-month CD paying 4.5%, you’re guaranteed to earn $225 if you leave it alone. And it doesn’t matter what the Fed does over the next year — your CD’s interest rate is safe.Meanwhile, if you put $5,000 into a savings account paying 4%, you’re only earning $200 in interest throughout the year — and that’s if your interest rate stays the same. That’s unlikely to happen, though, since the Fed is expected to keep moving forward with rate cuts. The difference in interest between what a CD pays you and what a savings account pays you in the next year could be pretty substantial.However, you should know that most CDs penalize you for removing your money early. If you end up needing the cash, you risk a penalty that your bank can set at its discretion. If that penalty is three months of interest, an early withdrawal will cost you $56.25 in this example. That’s money you wouldn’t be looking at losing if you were to keep your cash in a savings account instead.What’s the right choice for you?Clearly, there are benefits and drawbacks to both savings accounts and CDs. If you’re not sure which one to choose right now, ask yourself:What’s this money for? If it’s for emergency expenses, a savings account is generally a better bet. Do I have any large expenses coming up? If you know your aging car will likely need a repair in the next year, or if your friends have been talking about a big trip, then you may want to keep your money in a savings account so you can access it without a penalty. Am I trying to meet a specific goal? If you keep your money in a savings account, you may be tempted to pull it out on a whim because there’s no penalty. A CD might help you reach your goal by not only paying you more interest, but motivating you to keep your money where it is to avoid an early withdrawal penalty.All told, either a savings account or a CD could be a good place to put your money right now. And remember, it doesn’t have to be one or the other. You could opt to keep enough money in a savings account so you’re covered for emergencies, but put some cash into a CD for a higher return. Play around with different options to see if you can get the best of both worlds.Alert: highest cash back card we’ve seen now has 0% intro APR into 2026
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.”}]] [[{“value”:”

As of 2022, only 63% of Americans had enough savings to cover an unplanned $400 expense, per the Federal Reserve. Ideally, you’re not only part of that 63%, but in a position where you have a much larger bank account balance than $400. And if so, you need to find the right home for your money.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

You may be torn between a savings account and a CD. And you should know that there are pros and cons to each. Let’s dive in so you can make an informed decision.

Savings accounts: The pros and cons

The nice thing about a savings account is that you get plenty of flexibility with your money. Need to take out $500 on a whim to cover a home repair? Your bank won’t penalize you for that.

Plus, even though interest rates are starting to fall in the wake of the Federal Reserve’s benchmark rate cuts, savings accounts are still paying nicely. If you shop around for a great rate, you may be pleasantly surprised at how much interest your savings can earn you. Click here for a list of the best savings accounts today.

On the flipside, you’ll typically earn a higher interest rate on a CD than a savings account. Also, with a CD, your interest rate is guaranteed for a specified period. That’s important, given that interest rates are likely to keep falling as the Fed continues to cut its benchmark rate.

In fact, let’s say you’re looking at earning 4% in a savings account today vs. 4.5% in a 12-month CD. Not only is that 4.5% interest rate higher to begin with, but it’s yours to enjoy for a full year. Your savings account’s rate might drop to 3.8% in November, 3.5% in December, and so forth. We just don’t know.

CDs: The pros and cons

Although it’s gotten harder to find 5% CDs these days, many CDs are paying close to that. Click here for a list of the best CD rates available today.

If you put $5,000 into a 12-month CD paying 4.5%, you’re guaranteed to earn $225 if you leave it alone. And it doesn’t matter what the Fed does over the next year — your CD’s interest rate is safe.

Meanwhile, if you put $5,000 into a savings account paying 4%, you’re only earning $200 in interest throughout the year — and that’s if your interest rate stays the same. That’s unlikely to happen, though, since the Fed is expected to keep moving forward with rate cuts. The difference in interest between what a CD pays you and what a savings account pays you in the next year could be pretty substantial.

However, you should know that most CDs penalize you for removing your money early. If you end up needing the cash, you risk a penalty that your bank can set at its discretion. If that penalty is three months of interest, an early withdrawal will cost you $56.25 in this example. That’s money you wouldn’t be looking at losing if you were to keep your cash in a savings account instead.

What’s the right choice for you?

Clearly, there are benefits and drawbacks to both savings accounts and CDs. If you’re not sure which one to choose right now, ask yourself:

What’s this money for? If it’s for emergency expenses, a savings account is generally a better bet. Do I have any large expenses coming up? If you know your aging car will likely need a repair in the next year, or if your friends have been talking about a big trip, then you may want to keep your money in a savings account so you can access it without a penalty. Am I trying to meet a specific goal? If you keep your money in a savings account, you may be tempted to pull it out on a whim because there’s no penalty. A CD might help you reach your goal by not only paying you more interest, but motivating you to keep your money where it is to avoid an early withdrawal penalty.

All told, either a savings account or a CD could be a good place to put your money right now. And remember, it doesn’t have to be one or the other. You could opt to keep enough money in a savings account so you’re covered for emergencies, but put some cash into a CD for a higher return. Play around with different options to see if you can get the best of both worlds.

Alert: highest cash back card we’ve seen now has 0% intro APR into 2026

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
Motley Fool Money does not cover all offers on the market. Editorial content from Motley Fool Money is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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