CD vs savings account which account is the most suitable one for you to save your money? I bet this is the question that most of us faced once in our lifetime. But what choice did you make? Was it the right one? Are you currently facing this dilemma and want a solution? Do not worry I am here for you.
When I started earning some money then I felt the need of having a separate account where I can park my money for future use. So I wanted an account that offers me the best interest rate. CD vs savings account which one is the best I had the same question in my head.
So I research a lot for my answer and I get to the depth of both these accounts. that's what makes me the right person to answer your question. Not only CD vs Savings account but I have all the answers that you might be facing today with the comparison between Cd vs savings accounts. So without wasting any more time let us begin with our article.
CD vs Savings Account
Without wasting much time let us look at the CD account as well as the savings account. And distinguish them on various factors. Let us first begin with the CD account.
What Is a CD Account?
CD stands for Certificate of Deposit. In simpler words, a CD account is a financial service that is offered by banks and various other types of financial institutions. A CD account is a time-based deposit that allows customers to invest a specific amount of money for a certain period.
The period for which a person is allowed to invest in a CD account ranges from a few months to several years. The main reason why people choose to save their money in CD accounts is that they offer relatively low risk as compared to other investment options as well as it provides fixed interest rates.
Features of a CD Account
Let us now look at some fantastic features of a CD account. So that between CD vs savings account, we can choose the best one according to you.
1. Investment Period
So basically the major difference between CD vs a savings account is that in a CD account, you park your money there for a specific amount of predetermined time. The term for which you can park your money in a CD account may vary from some days to several years.
If you are also in a dilemma for choosing between CD vs savings account then this might be the ice breaker for you
2. Fixed Interest Rate
The interest rate that we get in a CD account is fixed. Here by fixed, we mean that the interest rate does not fluctuate according to the market condition. Another plus point of the interest rate in a CD account is that it is generally higher than a regular savings account.
3. Interest Payments
This is the best feature of a CD account according to me. There are various time intervals for which the interest earned on saving money in a CD account can be received. This includes monthly, quarterly, or annually.
If you park your money in a CD account then it will solely depend on your choice that how you want to earn interest on your money. Moreover, you also have an additional feature that your money can also get compounded and get directly added to the principal amount.
4. Penalties for Early Withdrawal
The major drawback of a CD account is that you cannot withdraw your money without paying the penalty money. If you are also in a dilemma for choosing between CD vs savings account then this might be the ice breaker for you.
So basically you will face a penalty if you need early access for your money before your CD matures. This penalty might be a part of your interest or a pre-determined amount.
5. Types of CDs
Well, to go with CDs there are various kinds of CDs which have different benefits. Multiple types of Cds are callable CDs, Variable CDs, Fixed rate CDs, and many more.
So I hope you can now understand everything that you need to understand before making a decision. But wait it's just CDs. We are not done yet. Let us now talk about savings accounts so that you can make a better choice between CD vs savings accounts.
What Is a Savings Account?
A savings account is the simplest account to understand. So basically Savings account is a financial account that is offered by different banks and various credit unions. As I said before savings account is the simplest and most common type of account that is used to save money.
A savings account is used by individuals generally because of three reasons which are security, no risk at all, and modest interest rate. If you are also in a dilemma for choosing between CD vs savings account then these amazing benefits of a savings account might be the ice breaker for you.
Features of Savings Account
Let us now look at some fantastic features of a savings account. So that between CD vs savings account, we can choose the best one according to you.
1. Deposit and Withdrawal
This one is the best feature that I found very useful in a saving account. So whenever you park your money in a savings account then you have the authority to withdraw whenever you feel the need to do so. This option is so much better and can be wisely used keeping in mind emergencies.
Moreover, there is no limit and no penalty on how much money you can withdraw from your savings account. If you consider this feature then between CD vs savings account I would say that you should consider savings account a good option too.
2. Interest Earnings
Interest rate which is being offered in a savings account is variable. By variable, we mean that the interest rate can vary from time to time depending on two conditions which are bank policies and market conditions. Here I would like to mention that the interest rate you earn on a savings account is typically lower than high-risk investments like stocks.
If you are also in a dilemma for choosing between CD vs savings account then this might be the ice breaker for you. So I would like to suggest that you should consider your financial goals before saving your money in a savings account.
Savings accounts are one of the most liquid accounts that financial institutions provide. By liquid, I mean that you can access the money which is saved in your savings account whenever you want to access it without any penalties or restrictions.
So if you're looking for such an account using which you can save your money for emergency funds or short-term financial goals then between CD vs savings account I would like to suggest that you should go with a savings account.
4. FDIC Insurance
Savings accounts are only offered by those banks or financial institutions which are backed up by FDIC. For those who don't know what is FDIC let me explain it to you. FDIC stands for Federal Deposit Insurance Corporation which is responsible for your money in banks from thefts or any other misshappening.
Currently, the limit set by FDIC is $250,000 per depositor per institution for any theft that has occurred in the bank or when the bank goes through financial difficulties.
5. Minimum Balance
Like various other accounts in saving accounts, you also have to put a minimum deposit and you have to maintain it so that you cannot get any penalty. This minimum balance is necessary because there are various charges associated with a bank.
Therefore it is a wise decision to look for terms and conditions before making any financial decision so that in future you cannot indulge in any unfair activities.
Well, this is all that you need to know about savings accounts. Now you know about both savings accounts as well as CD accounts. So we hope that now you will have some clarity that will help you to clear your dilemma of choosing between a CD vs a savings account.
CD vs Savings Account vs Money Market
Now let me tell you about another awesome account that will help you to make a better choice between these three accounts. But again make sure to read all the terms and conditions so that you can achieve your financial dreams without any hurdles.
What Is a Money Market Account?
A money market is a financial account that is offered by different banks and some financial institutions. So a money market accounts combine both the features of a checking account and a savings account. Sounds awesome, right?
Money market accounts are designed in such a way that they provide an equilibrium between the level of accessibility and giving more interest rates than a savings account. Therefore it is a good choice between CD vs Savings Account and vs Money Market account.
Features of a Money Market Account
Here are some features of a money market account that will help you to understand the money market account so that you can make a better choice in the dilemma of choosing between a CD vs Savings Account and a Money Market account.
1. Interest Earnings
This is the most important and distinguishable feature of a money market account. So basically the interest rate which is offered in a money market account is generally higher than a traditional savings account. But you have to keep one thing in mind.
The important point that you should note here is that the interest rate which is being offered in a money market account is variable which means it depends on market conditions which makes it a risky option. If you are also in a dilemma for choosing between CD vs savings account vs money market accounts then this might be the ice breaker for you.
This feature is similar to a savings account. In a savings account, we can access our money whenever we feel the need to do so. Like a saving account, you can also access your money in a money market account. This feature makes it a favorable choice for investors.
But wait here is a catch. There is a limitation on how many numbers of transactions you can make. If you extend the number of transactions then you have to pay for a penalty. So if you want your account to be liquid then choosing between CD vs savings account vs money market accounts then this might be the ice breaker for you.
3. Check Writing and Debit Card Access
Like a savings account in a money market account, you also get a feature to access your money by various means such as by using cheques. Some banks provide you with debit cards for money market accounts which is also a plus point in money market accounts.
Providing such services makes money market accounts look more versatile in comparison to traditional accounts for transactions. So if you want your account to be easily accessible then choosing between CD vs savings account vs money market accounts then might be the ice breaker for you.
4. Minimum Balance Requirements
Like a savings account in a money market account, you also have to establish a minimum account balance to avoid penalties. But the major drawback in this is that the minimum account balance is comparatively higher than a regular savings account.
But there is a plus point if you maintain this minimum account balance then you can avoid various fees related to it and you can earn high interest rates.
5. Investment Quality
The investment quality that we get in a money market account is comparatively better than a CD as well as a savings account. This is because the banks use the money which is saved in money market accounts to invest in various low-risk investment models.
These low-risk investment models generally include certificates of deposit, government securities, and short-term corporate bonds. By doing such investments banks can maintain the stability of a money market account.
Now I can say that now you know everything that you should have known to make a better financial decision. I hope that your dilemma of choosing between a CD vs a savings account has been reduced to some extent.
Frequently Asked Questions (FAQs)
1. Which Is Better Between CD and Savings Account?
Well if you ask me then the better choice between CD vs saving account solely depends on your future financial goals. Both accounts have their perks and drawbacks. So I would like to suggest that you should consult a financial advisor before making the right decision.
2. CD Account Is Suitable When?
According to my opinion, the CD accounts will suit you best in scenarios when you have short time financial goals, when you want to preserve capital, or when you want to become a conservative investor.
3. CD vs Savings Account Which Provides Higher Interest Rates?
In simple words, I can easily say that CD accounts provide you with higher interest rates this is because banks use the invested money to invest in low-risk investments. So if your priority is getting higher interest rates then between CD vs savings account you can easily go with a CD account.
Well if you're reading this conclusion then it means that you read our article. So do you like it? Am I able to solve your dilemma of choosing between a CD vs a savings account?
In conclusion, as I mentioned before CD stands for Certificate of Deposit. In simpler words, a CD account is a financial service that is offered by banks and various other types of financial institutions. A CD account is a time-based deposit that allows customers to invest a specific amount of money for a certain period.
On the other hand, a savings account is the simplest account to understand. So basically Savings account is a financial account that is offered by different banks and various credit unions.
We will keep on updating this article whenever there is something new updated in both CDs as well as a savings account. So it will be beneficial for you to bookmark this article for future needs. If you still have any doubts or you're still in a dilemma of choosing between a CD vs Savings account then you can easily contact us in the comments and we will try to reach you as soon as possible.