High Yield Savings Account vs CD: A Guide

High Yield Savings Account vs CD: A Guide

When interest rates are high, it's good to understand the differences between these accounts and their benefits so you can make informed decisions about your savings strategy.

Published July 12, 2023

10 min read

HYSA vs CD: What’s the difference?
HYSA vs CD: Pros and cons
Laurel Road High Yield Savings Account
Save your way: HYSA vs CD

In today’s evolving economic climate, choosing the right savings account could help you maximize your savings and even reach your financial goals faster. Though popular, traditional savings accounts often won’t get your money to work for you the way High Yield Savings Accounts (HYSAs) and Certificates of Deposit (CDs) could. And when interest rates are high, it’s good to understand the differences between these accounts and their benefits so you can make informed decisions about your savings strategy.

HYSA vs CD: What’s the difference?

Both High Yield Savings Accounts (HYSAs) and Certificates of Deposit (CDs) are great savings vehicles that are generally seen as safe investments, especially in times of high market volatility. It’s important, however, to understand how they work, as they serve different purposes and offer distinct features.

A High Yield Savings Account is similar to a traditional savings account, but with a higher rate of return. Just like your usual savings account, a HYSA offers you the flexibility of easy and immediate access to your funds. It does not have any time limits that lock in your money, allowing you to deposit and withdraw cash whenever you need it. However, the interest rate you will receive for your HYSA will fluctuate with the current market offerings.

Certificates of Deposit, on the other hand, offer a guaranteed rate of return for the lifetime of the certificate, but you are required to keep your money locked in the account for a specific amount of time, which can range from a few months to several years.

Determining which account is more beneficial depends on your individual needs. If you value liquidity and the ability to access your savings at any time, a HYSA may be the better choice. However, if you have a specific savings goal and don’t need immediate access to your funds, a CD’s guaranteed rate of return can be advantageous.

HYSA vs CD: Pros and cons

If you’re considering opening a HYSA or a CD, it’s helpful to explore the pros and cons of each offering to help you make an informed decision. You can choose to go with one or both depending on your savings approach. Ultimately, how you structure your savings plan is a matter of personal preference and need.

How to take advantage of HYSA savings

Here are some of the pros and cons of this type of account, and a few examples of how you could use it to reach your savings goals.

HYSA: Pros

Flexibility: With a High Yield Savings Account, you can deposit and withdraw funds as needed, giving you the freedom to adapt to unexpected expenses or changes in financial circumstances.
Easy and immediate access: Unlike a CD, a HYSA allows you to access your money whenever you need it without any penalties.
No time limits: There are no restrictions on the duration of your savings, making HYSAs ideal for short-term goals or emergency funds.

HYSA: Cons

Rate of return may fluctuate: Since interest rates can change based on market conditions, the rate of return in your High Yield Savings Account may vary.
Possible balance requirements: Depending on the institution, some HYSAs require a minimum balance to be maintained to avoid fees.

HYSA: How to use it

Emergency fund: A HYSA is ideal for building an emergency fund, providing easy access to funds in case of unexpected financial needs.
Saving for a big expense: Whether it's a wedding, vacation, or down payment/renovation on a home, a HYSA offers the flexibility to save for significant expenses while earning interest.

How to take advantage of Certificate of Deposit savings

Here are some of the pros and cons of CDs, and some examples of how you could use it for longer-term goals.

CDs: Pros

Guaranteed rate of return: CDs provide a fixed interest rate for the duration of the certificate, providing a predictable return on your investment.
Typically, no monthly fees: Unlike some savings accounts, CDs often come with no monthly fees, allowing you to maximize your savings.

CDs: Cons

Limited accessibility: Once you deposit funds into a CD, you cannot withdraw the money until the certificate matures without incurring penalties.
Subject to inflation risk: Unlike a HYSA, a CD locks your money in to a set rate, so if interest rates decrease before the certificate matures, the money you have invested may lose some purchasing power if the gains are not in correspondence with inflation.

CDs: How to use them

Post-graduate gift savings: If you have received a financial gift that you don't need to use immediately, a CD can help you lock in a favorable interest rate for a specific period.
Long-term financial goals: Saving for long-term goals such as retirement or higher education can be a great way to utilize CDs, as the funds can grow steadily over the lifetime of the certificate.

High Yield Savings Account with Laurel Road

When it comes to High Yield Savings Accounts, Laurel Road offers competitive rates that can help your savings grow faster. With rates that are consistently higher than the national average, you can maximize your savings potential and reach your financial goals sooner. Laurel Road’s HYSA also requires no minimum balance and zero monthly maintenance fees. Learn more about our current HYSA interest rates.

Save your way: High Yield Savings Account vs CD

Choosing between a High Yield Savings Account and a Certificate of Deposit depends on your unique needs and preferences. Consider your short-term and long-term financial objectives — as well as your comfort level with locking in funds — when making your decision. If you value flexibility, easy access to your cash, and the potential for higher interest rates, a HYSA may be the right choice for you. Alternatively, if you have specific savings goals and can commit to a fixed term, a CD’s guaranteed rate of return might be more suitable. Take control of your savings and start making progress towards your financial goals in a way that’s best for you.

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Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice, legal, financial, or tax advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues. Calculators do not include the fees and restrictions that certain products may have. This calculator does not indicate whether you would qualify for a Laurel Road loan. Please visit the applicable banking product pages on laurelroad.com for specific terms and conditions.

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