Should I open a CD or a high-yield savings account in 2024?
It's New Year's Resolution season, which means that a lot of people will be hitting the gym soon – and some may also be looking for ways to save money. If you're trying to be more financially responsible in 2024, putting money into the bank so it can work for you is a good start.
There are a lot of options when it comes to deposit accounts, but two of the most popular are high-yield savings accounts and certificates of deposit (CDs). These accounts are protected by the FDIC for up to $250,000 per depositor, per account, so even if your bank were to fail, your money would still be safe. Both accounts also let you earn interest on your money, which can be especially lucrative right now.
So, if aren't sure which type of account to open, here's how to determine whether a CD or a high-yield savings account is best for you.
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Should I open a CD or a high-yield savings account in 2024?
Both CDs and high-yield savings accounts can be good ways to keep your money safe while earning interest. There are differences between the two, though, so it's important to take the time to figure out which one is best for you or determine whether you should be putting money in multiple types of accounts.
What to know about CDs
The best part of a certificate of deposit is that your interest rate is locked in when you open the account, meaning that even if rates go down overall, you'll still be earning the same interest rate for the full CD term. That feature is particularly beneficial right now. Rates are high as a result of the Federal Reserve raising the federal funds rate to fight inflation.
The attempt to temper inflation has had a significant impact so far, and the Fed has kept interest rates paused for three consecutive meetings. It also hinted that rate cuts could be coming in 2024. This could have an impact on the rates offered on CDs, but if you open an account now, your rate will be fixed for the term.
On the other hand, it's important to note that when you open a CD, you agree to keep your money in the account for the entire CD term, which is generally between a few months to a few years. There are typically significant penalties for withdrawing money from a CD before it matures, so be sure that you won't need access to your money before the CD term ends.
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What to know about high-yield savings accounts
A high-yield savings account works the same way as a traditional savings account. You deposit money and earn interest while the money is in the account. The difference is that high-yield accounts generally offer better interest rates than regular savings accounts. And, while rates for high-yield savings accounts are high right now, they could decline in the future if the Fed cuts rates.
Interest rates for high-yield savings accounts are variable, though, so if your bank lowers rates, you'll earn less interest. The tradeoff is that with a high-yield savings account, you generally aren't required to keep your money in the bank for a specific length of time. You can deposit and withdraw money from your account as needed.
Which should you pick?
The choice between a CD and a high-yield savings account generally depends on what is most important to you. If you want to maximize your returns, a CD could make the most sense, as you'll lock in a high interest rate until it matures. If flexibility is what matters the most to you, a high-yield savings account offers access to your money when you need it.
For some savers, the best option may be to open both types of accounts. Determine how much money you are comfortable locking away and put that into a CD. You can put the rest of the money in a high-yield savings account, which could mean earning less if interest rates go down, but you'll retain access to the funds.
The bottom line
The new year is the perfect time to start saving more money. Both CDs and high-yield savings accounts are solid ways to do that. Which you choose ultimately comes down to what is most important to you, but in some cases, opening both may well be the way to go.
