Is a CD or savings account better heading into 2024?
There are just weeks left in 2023 and many decisions to ponder, from the holidays to your goals for 2024. One of those goals, inevitably, will be to improve your financial situation. Because, no matter how well you likely did in 2023, there's always room for improvement. And a new year offers just that opportunity. But with inflation still stubborn and interest rates still high, you'll need to take a more judicious approach than you may have at the start of a different year.
With that in mind, is a certificate of deposit (CD) or high-yield savings account better to open heading into 2024? The answer may not be as clear as you'd imagine. Below, we'll break down when both options could be worth it for you.
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Is a CD or savings account better heading into 2024?
When it comes to personal financial decisions, what may be good for one person may not be as beneficial for another. As such, it helps to know when either of these account types will be better for you in the year to come.
When a CD may be better heading into 2024
A CD account may be better for you going into the new year if you're confident that interest rates on these accounts won't go up anymore. Or, if they do, the difference will be negligible.
That's because CD rates are locked when you open the account. So if you open one with a 5.5% rate today and rates go down in March 2024, you'll still earn interest at the same rate until the CD expires. And since the forecast for CD interest rates is unclear, it may be smart to lock in a long-term CD rate right now, before the clock strikes midnight on December 31.
CDs also come with safety — both FDIC insurance and protection against what may have been impulse spending courtesy of the account holder. Because the money is locked away for the full duration of the CD term (you'll have to pay an early withdrawal penalty to get it out sooner), a CD can be more likely to grow undisturbed than accounts with easier access.
Plus, even if rates go higher, you could always ladder multiple CD accounts to expire at different times, allowing you access to funds you can then use to open new accounts at higher rates.
See what CD rate you could qualify for here now.
When a high-yield savings account may be better heading into 2024
On the other hand, if you think the era of nonstop rate hikes hasn't quite ended, then a high-yield savings account may be better for you to open now. That's because rates on these accounts, unlike their CD counterparts, are variable. So as the benchmark interest rate changes, the rates on these accounts will follow — up, down or in the middle.
Plus, whatever interest you do earn will be immediately available for you to withdraw. Unlike CDs, which lock your funds away for the full term, the money in a high-yield savings account is just as accessible as it would be in a regular account — all while earning that higher APY.
A high-yield savings account could also be better for you in the year to come if you know you'll need the funds at some point soon but still want to earn today's high savings interest rates in the interim. And you'll never actually lose money. Even if rates go down, you'll just lose the power of those interest rates — your principal will remain the same. And considering rates on high-yield savings accounts are 4.5% or higher right now, and rates on regular accounts are just 0.46%, it may make sense not to even wait until 2024.
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The bottom line
Heading into 2024, the choice between a CD and a high-yield savings account is a personal one. There is no one right answer. With appealing advantages right now — and limited options to choose from in today's high-rate environment — it may even make sense to open both. By doing so, you'll get the advantages of both account types while successfully countering each account's drawbacks. As usual, however, just make sure that the accounts can help you fulfill your personal financial goals for 2024; otherwise, they may be more effort than they're worth.
