Introduction

When it comes to growing your savings, high-yield savings accounts and certificates of deposit (CDs) are two popular options. Both offer higher interest rates than traditional savings accounts, but they come with different features and benefits. In this article, we’ll explore the pros and cons of each to help you decide which is the best fit for your financial goals.

What Is a High-Yield Savings Account?

A high-yield savings account is a type of savings account that offers a higher annual percentage yield (APY) compared to traditional savings accounts. While traditional accounts may offer around 0.40% APY, high-yield savings accounts can offer rates over 4.5%, allowing your money to grow faster.

These accounts are relatively easy to access, making them a great option for building an emergency fund or saving for short-term goals. You can link them to your checking account for easy transfers and even set up automatic bill payments.

Pros and Cons of High-Yield Savings Accounts

Pros

• Higher-than-average interest rates
• Easy access to funds
• FDIC-insured up to $250,000

Cons

• Limited number of convenient withdrawals per month
• Possible fees for low balances or excessive withdrawals

What Is a CD?

A certificate of deposit (CD) is a savings product that locks your money in an account for a fixed term, ranging from one month to five years. In return, you earn a higher interest rate compared to regular savings accounts. However, withdrawing money before the term ends usually incurs a penalty.

CDs are ideal for money you don’t need immediate access to, allowing it to grow over time. Strategies like CD laddering can help manage liquidity by staggering the maturity dates of multiple CDs.

Pros and Cons of CDs

Pros

• Competitive interest rates
• Guaranteed returns
• FDIC-insured like other savings accounts

Cons

• Penalties for early withdrawal
• Returns may lag behind the stock market

Should You Use a High-Yield Savings Account or a CD?

Both high-yield savings accounts and CDs offer higher interest rates and are safe places to keep your money. If you need easy access to your funds, a high-yield savings account is a better fit. It’s ideal for emergency funds and short-term savings goals.

On the other hand, if you have money you won’t need to access right away, a CD can be a great option. It allows your money to grow at a higher rate while you focus on other financial goals.

Many people find it beneficial to use both options, keeping some money in a high-yield savings account for liquidity and some in a CD for higher returns.

The Bottom Line

High-yield savings accounts and CDs are excellent tools for growing your wealth and safeguarding your savings. Each has its own set of advantages and disadvantages, so it’s important to consider your financial goals and needs when choosing between them.

At O1ne Mortgage, we are committed to helping you make the best financial decisions. Whether you’re looking to open a high-yield savings account or invest in a CD, our team is here to guide you every step of the way. Call us today at 213-732-3074 for personalized mortgage services and financial advice.