CD Rates vs Savings Accounts

Financial institutions offer both savings accounts and CDs where people would always have trouble which one is the best choice for them.  Savings accounts have interests just like CD rates are there for certificates of deposit.  When it comes to CDs, financial institutions like banks require depositors to have their money left to their care for a certain period of time that can range from a couple of weeks to years.  Savings account on the other hand offer depositors easy access to their deposited money at any time and security to having hard-earned money in a bank.

When it comes to interest rates, the highest CD rates can outshine what savings account can offer since the bank has full control of the depositor’s money for a certain period of time.  This control given to the bank or financial institution gives it more flexibility to have it invested in long-term investments that will be able to provide higher return rates.  These high returns can also be passed down by the institution to the depositor who chose CD.  Technically, the longer the term you have signed up for a  CD, the higher the interest rate you will be receiving.

 Liquidity is where CDs and savings accounts have a major difference.  Liquidity is the ability of the account holder to gain access to his funds or money.  Money signed up for certificate of deposit is not accessed by the holder until the contract has finished or until the account has matured.  Pulling it out of the bank or contract can lead to pricey penalties that financial institutions can automatically charge to the said account.  Savings accounts are more liquid since the holder can withdraw his deposited money at anytime he wants without the need to pay for penalties but, as long as you still have the minimum required balance left after withdrawing.

Certificates of deposit and savings accounts are secured and protected by the Federal Deposit Insurance Corporation or FDIC.  This means that your deposit has a certain amount of protection of up to $250,000 per depositor.  This type of protection makes both the CD and savings account secure.

Interest payments in savings accounts are usually added to the account once the interest is compounded which is every month and you can use it immediately.  CDs on the other hand can make use of interest payments in one of two ways.  First, it can be used after the account matures or you can have it settled so that you can use it every month.

If you are to decide which is best for you, be it savings account or certificate of deposit you should consider your situation first.  If you are the type who usually is in need of quick withdrawals to your funds, then account savings is what you need.  But if you are the type who has extra money for some investments aside from what you need, then CD with the best CD rates is perfect for you.