Should I deposit $1,000 into a savings account or CD?
With hopes that the latest round of inflation is in the past, but with new reports that it actually rose again in July, many Americans are taking a cautious approach to their personal finances. With the benchmark interest rate at a 22-year high and mortgage loans more expensive than they've been in decades, it's especially important to be judicious about where you invest your money — and where you store it when you're not spending it.
While higher interest rates have made borrowing more expensive, they've resulted in exponentially better returns on some traditional savings vehicles. Specifically, savers can earn many times more interest by opening a high-yield savings or certificate of deposit (CD) account now than they could have just a few years ago.
With that context, should savers deposit $1,000 (or more) into a savings account now? Or are they better served by putting it into a CD instead?
Should I deposit $1,000 into a savings account or CD?
To get the greatest return on your $1,000, it helps to know which type of account is better. As is the norm with financial considerations, the decision is a personal one. Here's how to figure out which is best for you now.
When you should deposit $1,000 into a savings account
A high-yield savings account is better for holding your $1,000 if you're not sure if you'll need it again soon. This type of savings accounts operates identically to a regular savings account, albeit with the higher interest rate. So, if you may need the money or at least want the flexibility of knowing it's available at any time (unlike a CD, in which the money is locked away for the full term), then it makes sense to put it into a high-yield account.
You also may be better served by depositing the money into a high-yield savings account if you're confident that interest rates will rise again. High-yield savings account interest rates are variable, meaning that they will change alongside the economy and the federal funds rate. If you think interest rates will rise once again, then it's smarter to put that money into a high-yield savings account so you'll be best positioned to earn that higher rate.
Finally, you don't want to lose the money you've saved with pesky fees and penalties. Fortunately, there are many high-yield savings accounts that come fee-free. So, if the above reasons sound favorable to you, you may be better off depositing your $1,000 into a high-yield savings account instead of a CD.
Get started with a high-yield savings account here now.
When you should deposit $1,000 into a CD
On the other hand, if you feel that interest rates have peaked, as many experts do, then you may be better served by depositing $1,000 into a CD. That's because CD interest rates are locked for the duration of the term, regardless of what happens in the overall rate environment. The interest rate you open the CD with will be the same rate it expires with — injecting some much-needed predictability into your finances.
Interest rates on CDs, while comparable to high-yield savings accounts, also tend to be a bit higher. And because the money is locked away for the full term (unless you're willing to pay a penalty to withdraw it early), you can rest assured that it will grow undisturbed. If you're someone who wants to avoid making impulse purchases, then a CD could be a smart way to protect and grow your money.
Check your CD options here and learn more.
What not to do
Regardless of which of the above two options you ultimately choose, what you shouldn't do is leave the money in a regular savings account. These accounts offer rates that are too low (currently just 0.43%) to materially grow your bottom line, and most aren't even keeping pace with inflation. By leaving $1,000 or more in a regular savings account, you're essentially losing money. So don't make that mistake. Put some or all of your money into a high-yield savings account or CD now and watch it grow at a quicker pace. Get started today!
