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.

How to take advantage of HYSA savings?

HYSA: Pros 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. 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.

How to take advantage of Certificate of Deposit savings?

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.

Maximize Savings and Minimize Risk with a High Yield Savings Account

A high yield savings account (HYSA) is a tool you can use to steadily grow your money with minimal risk. In this guide, you'll learn more about HYSAs, their pros and cons, and how they compare with other savings options.

Published September 06, 2024 12 min read

Father and son learn about high yield savings accounts

What is a high yield savings account?
How do high-yield savings accounts work?
What do you need to open a high yield savings account?
How to choose the right HYSA
When to use a high yield savings account
High yield savings account with Laurel Road

Whether you’re looking to purchase your first car, renovate your home, or further your education, saving money is an important part of your overall financial health. No matter your goals, there are a variety of savings tools available to help you prioritize and grow your hard-earned money over time. From investing in stocks to making use of different types of savings accounts, the tools you choose will depend on your specific financial objectives and how much risk you are willing to take with your money. You may even choose to use a range of different tools for short-term goals vs. long-term goals. Opening a high yield savings account (HYSA) is one way to steadily grow your money through high interest rates with minimal risk. Keep reading to learn more about HYSAs, the pros and cons, and how to choose the best one for you.

What is a high yield savings account?

A HYSA is a type of savings account that offers a high annual percentage yield (APY). APY is the percentage of interest earned on your money within one year. The APY is significant with a HYSA account because the interest rate offered is typically higher than interest rates on a standard savings account, helping your money grow faster in a shorter amount of time.

HYSA vs. standard savings account

The biggest difference between a HYSA and a standard savings account is the interest earnings opportunity. A HYSA’s higher interest rate provides you with a better rate of return on your initial deposit. According to the Federal Deposit Insurance Corp. (FDIC), the national average interest rate on a traditional savings account is 0.45%, while many HYSAs offer interest rates at several times that amount.

For example, if you deposit $1,000 in a HYSA and earn 4.5% annually, you’ll earn about $45 in interest in one year. If you put the same initial amount in a standard savings account at 0.45%, you would only earn about $4.50 in interest in one year.

Keep in mind that a HYSA may have different requirements than a standard savings account, including a minimum deposit amount to open an account and monthly maintenance fees, and those policies vary between each financial institution. Learn more about Laurel Road’s HYSA here.

HYSA vs. other accounts

It can be helpful to compare other common investment accounts to those of a HYSA when you are deciding how to invest your money and build your savings.

HYSA

A HYSA is a secure and stable way to grow your savings through a high return on your investment. Most HYSAs allow you to withdraw money as needed, which gives you added flexibility, and there aren’t any time limits on your account, so you can use it to save in the short or long term. Additionally, one of the major perks of this type of savings account is that most are insured up to $250,000 per depositer by the FDIC. Your money will be safe up to that amount if your bank goes out of business. One potential downside of a HYSA? You aren’t locked into a fixed interest rate, so your return on investment may fluctuate over time.

CD

A Certificate of Deposit (CD), another type of savings account, offers fixed interest rates, but you can’t withdraw your money until a specific amount of time has passed without incurring penalties. As a result, if you are comfortable locking in a certain amount of money, a CD account works better for long-term savings goals that benefit from a predictable rate of return.

Stocks

In contrast to a HYSA and CD, you may have higher earning potential from investing your money in another type of account like a growth stock. That said, these accounts can be less stable and more volatile based on the market, and stocks are not insured by the FDIC.

How do high yield savings accounts work?

While certain accounts may accumulate interest differently, typically a HYSA accrues daily and compounds, meaning interest earns interest. Even if interest accrues daily, it typically pays out at a monthly rate.

Use this HYS calculator to estimate how much you could earn on your initial deposit and regular monthly deposits over different time periods.

High Yield Savings Calculator

Estimate how much interest you could earn with a Laurel Road High Yield Savings account compared to the national average APY for other savings accounts.

Initial Deposit Amount

Monthly Deposit Amount

Save for 10 Years

1 Yr

10 Yr

Interest You Could Earn

Your Total Contributions $0

Potential Future Balance $0

Potential Interest Earned $0

Laurel Road (% APY)

National Average (% APY)

This calculator is for illustrative purposes only. Calculations are estimates of expected interest earned and actual results may vary, based on various factors such as leap years, timing of deposits, rounding, and variation in interest rates. Calculated values assume that principal and interest remain on deposit and are rounded to the nearest dollar.

All APYs are subject to change at any time before or after account opening. Laurel Road Annual Percentage Yield (APY) as of XX/XX/XX. National average APY reported by reported by the FDIC as of XX/XX/XX.

What do you need to open a high yield savings account?

Opening a HYSA account is similar to any other bank account in that you will need to fill out an application either online or in person and provide the following information:

Your name, address, and other contact information
Your Social Security number
Acceptable government-issued ID (driver’s license, passport)
Details to set up a wire transfer, move funds from your checking account, or a check to deposit the initial savings amount

A financial institution may also require you to disclose information about your employment, existing debt, and other bank accounts before they approve you. Once you are approved, you’ll need to register for an online account with a unique login and password.

Remember that some HYSAs may require a minimum deposit amount to open an account, plus monthly maintenance fees.

How to choose the right HYSA

It’s important to compare a few HYSAs to find the one that works best for you and your money. Consider the following factors as you read the fine print:

Interest rates

Fees

Accessing funds

Minimum deposits

Interest rates

The amount of interest you earn on your savings in a HYSA will differ between financial institutions. Remember that the interest rates for a HYSA can change over time depending on how the market fluctuates. That is to say, you aren’t locked into one interest rate as you would be with a CD, which guarantees a fixed interest rate for your investment.

Fees

Some financial institutions may charge fees if a savings account dips below a certain minimum amount or may have a monthly or annual service fee. Others may not charge any fees at all.

Accessing funds

If you want to easily access your savings when needed, double-check how your HYSA handles withdrawals. Some HYSAs may set limits on how and when you can withdraw funds.

Minimum deposits

Some HYSAs may require you to deposit a minimum amount of money when you open the account. This amount may vary, but it’s always important to confirm if it’s an amount you can afford. You may also be required to keep a minimum balance at all times.

When to use a high yield savings account

A high yield savings account can help you save for big purchases such as buying a house, booking a special vacation, paying for a wedding, or fixing that pesky leak in your roof. A HYSA is also a good way to build or pad your emergency fund in case unexpected expenses arise in the future. Most financial advisors recommend having 3-6 months’ worth of your salary on hand in case of an emergency, such as a large medical bill, home repairs, or job loss. A HYSA can help you reach that goal more quickly than a traditional account. It’s a secure, low-risk way to save and protect your money as you work towards your financial goals, and you can typically withdraw money as you need it.

To get the most out of your HYSA, consider setting up a regular direct deposit of funds from your checking to your HYSA account once a month or every time you get paid. An automatic deposit is a simple way to help build your savings consistently and reach your financial goals sooner without doing any extra lifting.

High yield savings account with Laurel Road

With competitive rates and minimal requirements, HYSAs provide a secure and flexible way to enhance your financial health. Laurel Road’s HYSA option makes it easy to start saving with no minimum balance requirements and no monthly maintenance fees. Additionally, deposits are insured by the FDIC up to $250,000, ensuring your funds are protected. Explore how a Laurel Road HYSA can help you achieve your financial goals.

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Maximize Savings and Minimize Risk with a High Yield Savings Account

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