Why a high-yield savings account could be better than a CD right now
Those eagerly awaiting new signs that inflation is abating will have to wait a bit longer after a report released last week by the Labor Department showed inflation unchanged in September. After rising in July and August, inflation remained static in September at 3.7% — still significantly above the Federal Reserve's target of 2%. And while stubborn inflation means higher borrowing costs for millions, it also means substantially higher returns on many savings accounts.
Two of the more popular accounts currently are high-yield savings and certificates of deposit (CD) accounts. While both have unique pros and cons, there's a compelling case to be made now that high-yield savings accounts are the better of the two alternatives. Below, we'll break down a few reasons why savers may want to choose this option right now.
Why a high-yield savings account could be better than a CD right now
Although each individual's personal financial situation differs, there are some benefits to opening a high-yield savings account instead of a CD in October 2023. Here are two major ones to know:
Improved chances of earning a higher rate
Interest rates on high-yield savings accounts, unlike CDs, are variable. While this means that your interest rate could drop in the future (unlike CDs, which are locked), it also means that you could potentially see your interest rate rise in the future. And if the battle against inflation continues to remain stagnant, the Federal Reserve will raise the benchmark rate yet again, meaning that any money you have in a high-yield savings account will be better positioned to take advantage of that rate increase.
Get started with a high-yield savings account here now.
More flexibility
In today's economy, flexibility is crucial. You'll generally want the ability to move your funds around freely in order to better protect and grow your bottom line. Since high-yield savings accounts operate just like regular savings accounts, you'll be able to do exactly that. While CDs are good resources right now as well, you won't be able to withdraw your funds to earn at a new, higher rate without first paying a penalty to access them.
Other considerations
Although a high-yield savings account can arguably be better than a CD right now, there are many experts who would recommend going the CD route. That's because CDs generally have slightly higher interest rates than their high-yield counterparts. And that rate will remain what it was when the account was opened — regardless of any external economic factors that may have affected the overall rate environment. Plus, CDs are locked and protected against poor financial decisions you may have otherwise pursued with greater access to funds, like impulse purchases or other, more volatile investments.
The bottom line
With so few options available today for Americans to grow their money, high-yield savings and CD accounts have taken on new importance. For many, a high-yield savings account may be the better option. Due to its variable rate, savers will be better positioned to earn more interest in the future (unlike CD rates that are locked), but they'll also have the freedom to access those funds in the interim (unlike a CD which will penalize accountholders from tapping into their funds early). Ultimately, the decision is a personal one for savers and, for many, instead of opening one or the other, the best route may be to instead open both.
