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CDs vs. Savings Accounts: Which One Is Right for You?

Nov 01, 2023
Posted by: Stearns Bank
Woman typing at her laptop, enthusiastically

Saving money is important for building a strong financial future. But where's the best place to grow your savings? Two popular options are savings accounts and certificates of deposit (CDs). Both keep your money safe and earn interest, but work differently.

Savings accounts let you access your money anytime, which is great if you need cash fast. CDs, however, offer higher interest rates but limit your access to your funds. Each has its own benefits and can be used together in a smart savings plan.

The key is choosing the option (or combination) that fits your financial situation and goals. Understanding how savings accounts and CDs work can help you make the best choice. Keep reading to learn more about these options, and how picking the right savings vehicle (or mix of both) can make your money work harder for you.

Digging Deep on Savings Accounts

Savings accounts are a great place to grow your money but still have access to it whenever you need. You earn interest over time, so your money grows — perfect for things like emergency funds. You can put money in and take it out at any time without penalties.Woman talking with a Stearns Business Banker

This is different from CDs, where you may pay a penalty if you withdraw early. So, if quick access to your cash is key, a savings account may be the way to go.

Some savings accounts, like the Above the Norm Personal Market Savings Account from Stearns Bank, offer higher interest rates than others. These are "high-yield" accounts. Even small deposits can grow over time. For example, $5,000 at a 1.00% rate would earn $50 in one year.

One extra benefit is that savings accounts are insured by the FDIC up to $250,000, giving you peace of mind when saving for the future.

The Advantages of CDsInfographic depicting funds growing over time

CDs, or Certificates of Deposit, offer higher interest rates than regular savings accounts - usually around 0.25% to 0.50% higher for the same period.

If you can leave your money alone for a set time, like 1-5 years, CDs can help grow your savings faster since they use compound interest. This means your money earns interest on top of interest over time.

The trade-off is CDs aren't as flexible as savings accounts. You may pay a penalty if you withdraw early. But some banks, like Stearns Bank, offer shorter CD terms from 6-12 months. This could work if you might need the cash sooner.

One thing to note — if interest rates rise, your CD may earn less. But you can manage this risk with a CD ladder — buying CDs with staggered maturity dates. Then you can take advantage of higher rates faster.

And just like savings accounts, CDs are insured by the FDIC up to $250,000 — so your money is protected.

Choosing the Right Account for Your Needs

Couple talking with Banker about account optionsChoosing between a savings account and a CD depends on your needs and goals. Do your research on withdrawal rules and interest rates for different accounts. Remember, higher rates can mean more growth over time, but may come with more restrictions.

Both options let your money grow over time. Savings accounts give easy access to funds, while CDs often have higher yields. Depending on your situation, one or both could be right for you.

At Stearns Bank, our financial experts can provide personalized advice to help you pick the best account. We specialize in guiding individuals to choose the most beneficial place to save for the future.

Consulting a professional can make a big difference when making informed money decisions. Are you ready to find the right account for you? Let Stearns Bank help guide your journey to financial success.

Are You Ready to Find the Right Account?  Consulting a professional can make a big difference when making informed money  decisions. Let Stearns Bank help guide your journey to financial success.  FIND AN ACCOUNT THAT FITS YOU