Savings vs. CD Accounts

When it comes to setting aside money for the future, consumers have many options. One common decision is choosing between opening a savings account or a CD account. Each one has its own benefits. Many consumers may ask: "What's the difference, and which one is better for me?" In this article, we'll examine the question of savings vs CD accounts, what each type offers and which might be the better choice for you.

What is a savings account?

There are quite a few varieties of savings accounts — but at their core, they generally share the same features. They're basic bank accounts where you deposit money and it earns interest. Account holders can withdraw funds when they like. However, some banks limit the overall number of transactions per month. Exceed that number and a monthly fee could be charged. There might also be a fee for each extra transaction over the limit. If transaction limits continue to be exceeded, some banks may even convert the account to a checking account.

What is a CD account?

A certificate of deposit, or CD as they're commonly called, is the next type of savings. They tend to pay higher interest rates than savings accounts. But that comes in exchange for leaving money deposited for an set period of time, called "the term." The term could be as short as 3 months or even stretch out for several years. Withdrawing money before the account matures often results in early withdrawal penalties. The penalty usually means forfeiting some or all of the interest the account has earned.

Benefits of a savings account

A traditional savings account is a low-risk investment that offers several benefits. Here's a list of their typical features:

  1. Low minimum balance requirements allow you to get started saving money easier

  2. Monthly maintenance fees are often waived if larger balances are maintained or other requirements are met

  3. Like other deposit accounts at FDIC institutions, savings accounts are insured by the Federal Reserve for up to $250,000 per depositor, per insured bank, for each account ownership category

  1. No early withdrawal fees — you can withdraw money when you need it

  2. You can add money to a savings account at any time, as long as transaction limits aren't exceeded

  3. Standard savings accounts tend to offer a fairly low interest rate, but higher balances may qualify for a high-yield savings account

Benefits of a CD account

Like basic savings accounts, CDs also have their benefits:

  1. In exchange for a loss of cash liquidity—by agreeing to leave funds deposited for a set amount of time—CD interest rates tend to be higher than savings account rates

  2. CDs may be considered somewhat safer than stocks, bonds, and other market-based investments that are subject to fluctuations

  3. Some CDs require only a low minimum balance to get started saving

  1. Even though money is locked in for set terms, there are options for early withdrawals, though you might in some cases incur a loss of interest earned

  2. Since taking out funds early results in penalties, it could lower the temptation of unnecessary spending. At the same time, you might consider keeping a separate emergency fund for unexpected expenses 

What to consider when choosing an account

Let's compare the two accounts and see what you might consider before jumping in on one or the other. Factors include:

  1. Interest rates 
    Savings account interest rates are typically lower than the rates that CDs offer. Because of a CD's defined term, banks typically pay more interest than for savings accounts. Some accounts have even higher returns if larger balances—often $10,000 or more—are deposited. Plus, some institutions offer a "bump rate" on their CDs. That's when having another account at the same bank results in a bump, or increase, in the interest rate

  2. Withdrawal flexibility
    For pure flexibility, a savings account wins every time. Although there might be limits to the number of transactions per month, for many people that won't be an issue. As to CDs, they have early withdrawal penalties, discouraging removal of funds before maturity. But that could be seen as useful, as it helps prevent unnecessary dipping into the CD's principal

  3. Fees
    If you work through a broker to obtain a CD, the broker may charge a brokerage fee. Otherwise, once a CD is opened the only extra charge that's likely would be for early withdrawal. Savings accounts may include ATM fees for withdrawals at those machines, maintenance fees if the account balance falls below a certain level, and excess transaction fees

  1. Minimum deposits and balances
    Both CDs and savings accounts are similar in this area. Many savings accounts have no minimum deposit or balance requirements. However, if the account stays below a certain balance, there might be a monthly fee charged. For CDs, there's almost always some minimum opening deposit requirement. That might be as low as $250 to start — or it could be $100,000 or more for high-end CDs

  2. Other factors
    Some CDs offer free auto-renewals. When the term matures on the CD, the principal and earned interest are automatically reinvested into a new CD. Of course, you could stop that from happening if you want to withdraw your money. There's usually a grace period, perhaps 10 days from the maturity date, when you can make withdrawals without penalty. CDs and savings accounts are insured by the Federal Reserve system if they're an FDIC bank. Both are equally secure. But CDs issued elsewhere, such as offshore CDs, brokerage CDs, and similar private instruments, aren't insured. These types of CDs often advertise much higher returns to entice investors. However, they may be less secure than uninsured CDs

Accounts offered at TD

TD Bank offers a wide range of personal finance options that consumers can take advantage of. Let's look at three of them:

Your TD account comes with more than just a great rate

  • Mobile Banking

    Bank anytime, anywhere—right from your phone with the TD Bank app.

  • TD Overdraft Relief3

    Overdrafts happen. When they do, TD Overdraft Relief gives you flexibility and options to avoid fees.

  • TD Checking Accounts

    Find an account that meets your needs – and has the perks you want.

  • TD Savings Accounts

    Whether you're saving for a rainy day or with a goal in mind, start today.

This article is based on information available in June 2023. It is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available. For specific advice about your unique circumstances, consider talking with a qualified professional.

1TD Choice Promotional CDs and IRA CDs will automatically renew at maturity to the same term at the non-promotional TD Choice CD or IRA CD interest rate and APY in effect at the time of renewal unless we notify you otherwise.

2To qualify for the relationship bump rate, customers must own an eligible TD Bank personal checking account in good standing at the time of CD account opening or renewal. See the Personal Deposit Account Agreement for more details about eligibility.

3Overdraft Services do not apply to TD Essential Banking Accounts. We may decline or return transactions that would result in an overdraft. Transactions that you make may cause your Account to overdraw but we will not assess your TD Essential Banking Account an overdraft fee or return item fee. For example, preauthorized transactions and other transactions may post to your Account even when the available balance in your Account is not sufficient to pay the transaction.

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