CD vs. savings account: Which is right for your family’s financial goals?
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Key takeaways:
- Savings accounts are easy to access but don’t earn much interest.
- CDs pay more interest but can’t be accessed penalty-free for a certain time.
- You can use both options to save for short and long-term goals.
As your family grows, you have a lot to look forward to—and a lot to save for. There are short-term savings goals like family vacations or a home renovation. Then there are long-term financial goals like your kids’ college tuition. Is there a good way to save for both?
Certificates of deposit (CDs) and savings accounts are both smart ways to save for your future. Both are ideal for growing families, but they differ in terms of interest, timespan, and accessibility. Here’s what you need to know about opening a CD vs. savings account so you can decide if one—or both—are right for your family.
Key differences between a CD and a savings account
Both CDs and savings accounts are designed to grow your savings over time, but they differ slightly in terms of access and interest.
Before breaking down the difference between a certificate of deposit vs savings account, it’s important to stress that these are not investment accounts—they both pay interest, but you shouldn’t expect exponential growth. You can learn more about the difference between saving and investing to find an investment account that’s right for you.
If you’re wondering if it’s better to store your money in a savings account or CD, here are the key differences you need to know.
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CD vs. savings account: A quick comparison
Let’s break down the difference between a CD vs savings account at a glance:
| APY (As of July 2025) | Access | Fees |
CD | Up to 4.5% | Limited for a pre-set term | Early withdrawal penalty |
Savings account | Around 0.38% | Open access | Minor monthly fee, depending on your bank |
CD
A certificate of deposit is a type of account that offers higher interest earnings than your standard savings account. The average interest rate for a CD is around 0.23% - 1.63% APY, although some financial institutions pay rates as high as 4.60% APY.
However, the amount of interest earned comes with a tradeoff: You can’t access the account for a pre-determined period of time. That term can be anywhere from one month to around five years. If you need to withdraw your savings before the term is up, you’ll have to pay an early withdrawal penalty.
Savings account
A savings account pays limited interest (around 0.38% APY on average), but you can access your savings anytime. The main difference between a checking vs. savings account is that your savings account isn’t linked to a debit card for easy spending. However, you can easily transfer funds from savings to checking when you need to pay for a big expense.
When a savings account makes more sense
Savings accounts are highly affordable and accessible. Your bank may charge a small monthly fee for the account, but many banks waive that fee as long as you maintain a minimum balance.
Keeping money in a standard savings account is handy for:
Emergency expenses
Short-term savings
Frequent withdrawals and deposits
You might also consider opening a savings account to teach your kid about money. A savings account can be a great tool for them to track their savings and safely withdraw funds when they need to.
Your bank may also offer a high-yield savings account with higher interest rates, but these accounts come with certain limitations, similar to a CD.
When choosing a CD is the smarter move
A CD account is ideal to set aside funds for your longer-term savings goals. You might want to open a CD if you’re saving for a big expense in the next few years, such as:
Buying a home
Renovating
Traveling with your family
A CD is also a smart choice if you want to grow your savings risk-free. Investment accounts offer the potential of higher earnings, but come with some risk and need to be monitored. With a CD, you can essentially set it and forget it.
Fixed terms and early withdrawal penalties
The biggest downside to a CD is that you will have to pay a penalty to withdraw your funds early. That penalty depends on your financial institution and CD term, but is usually a certain number of days’ worth of interest. For example, a 60-day withdrawal penalty for a 12-month CD at 4% APY is about $65.
When deciding between a CD account vs savings account, the first thing you need to ask yourself is: Will I need this money before the term is up? Make sure you have enough funds in your checking or savings account to cover an emergency expense.
How families can match goals to savings options
If you’re debating putting funds into a bank CD vs. savings account, remember that you don’t have to choose one or the other. You can set aside some funds in CDs and others in your savings account, depending on your financial goals.
It might help to write down your goals and match the best account for them based on timespan, access, and the amount you need to save. For example:
Family vacation: If you want to take a road trip next month, keep depositing in your savings account. However, if you’re saving up for a big family excursion in a year or two, consider a CD.
College tuition: You don’t want to spend your kid’s tuition fund early, so a CD is a safe place to store it.
Holiday presents: A savings account is a great place to set aside extra cash for the holidays.
New home: If you want to buy a home in the next few years, consider a CD to safely grow your funds.
Choose the savings strategy that fits your family’s future
When it comes to saving for your future, there is no “right” method. It’s all about finding what works best for your family and your goals. Both CDs and savings accounts offer a safe place to let your savings collect interest; however, if you choose a CD, remember that you won’t be able to withdraw your funds penalty-free until the term is up.
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