CDs vs. savings accounts: Which is better in today's economy?

When it comes to saving money, you have plenty of options to choose from. Two of the most popular are certificates of deposit (CDs) and savings accounts. CD and savings rates are high across the board currently, making now a great time to capitalize on the earning potential both types of accounts offer.

But which one is better for you in today's rate environment? We take a closer look below.

Check out today's savings rates here to find out how much more money you could be earning.

CDs vs. savings accounts: Which is better in today's economy?

To choose the right savings vehicle for you, it's important to know what differentiates them from each other. Here are the key things to consider.

Interest rates

CDs typically offer higher rates than savings accounts, which means you'll earn more interest on your savings. These rates are fixed when you open the account, so if you open a CD when rates are high — as they are now — you can enjoy that rate throughout the CD's term, regardless if interest rates go down.

Savings account rates, on the other hand, are variable, which means they rise and fall in response to federal funds rate changes. That said, you can get the highest savings rate on the market today by opting for a high-yield savings account. These accounts typically offer rates up to 12 times higher than regular savings accounts.

As with CD rates, savings account rates are currently high, and the Federal Reserve has locked the federal funds rate for the near future. By opening a high-yield savings account now, you can maximize your earnings while rates remain high.

Compare high-yield accounts online now to find the one that's right for you.

Ease of access

To earn higher interest rates with a CD, you must agree to keep your funds in the account for the duration of the CD's term. Terms typically range anywhere from three months to five years. If you withdraw money before the term is up, you incur penalties (typically equivalent to several months' interest). 

Savings accounts allow you to withdraw funds whenever you like, free of charge (as long as you adhere to any monthly withdrawal limits). This may make them a better option for things like emergency funds, which you could need to access at any time.

However, there are ways you can ensure earlier access to CD funds without incurring charges. The easiest is to open a no-penalty CD, which may offer a slightly lower rate than other CDs but gives you the flexibility to withdraw your money as needed. You can also create a CD ladder with multiple CDs of varied terms to provide regular access to your funds.

See your CD options here and get started.

Timeframe

If you choose a CD with early withdrawal penalties, you should be confident you can afford to keep your money in the account until it matures. If you're saving for long-term goals like retirement or a child's education, a CD is likely the better for the higher interest rates they offer. But even if you have a short-term goal, you can still enjoy high yields by opening a short-term CD that fits your timeframe.

"[CDs] are nice for savers who may have a specific goal they want to set money aside for — perhaps a house or car down payment — that has a specific time target they can match with a CD term," says Tim Melia, CFP, MBA, financial planner and founder of Embolden Financial Planning.

The verdict: CDs are better (in most cases)

Whether you should choose a CD and a savings account depends on your unique financial needs. However, in today's high rate environment, a CD is worth opening, especially if you opt for a longer term, which often gets you the highest rate.

"If you have longer-term money that you can set aside for 18 to 24 months, you may want to take advantage of [today's] higher CD rates," says Faron Daugs, CFP, founder and CEO of Harrison Wallace Financial Group. "That way, if interest rates begin to come down in 2024, you will have locked in a higher rate, while savings account interest rates will reflect any decline in rates."

Still, even a shorter-term CD can pay off, especially if you choose a no-penalty account. To find the best CD for your needs — at the best possible rate — compare your options here.

The bottom line

Bear in mind that investing in a CD or savings account doesn't have to be an "either/or" decision. There's no reason you can't have both. In fact, doing so could help you maximize your earnings while ensuring you have access to funds anytime you need them — a win-win for any saver.