What is the difference between CD and other savings accounts?

By: Stephanie Faris

If savings is your plan, though, one popular option is a Certificate of Deposit. CDs protect you from the risk you normally face when you invest, but they usually earn more interest than a savings account. But there are definite differences between standard savings accounts, money market accounts, and CDs, and it’s important to consider those differences before moving your money.

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You have many options for storing your money securely. You can keep it in checking, transfer it to a savings account, or invest it. Even within each of those options, though, you have choices to make. In the investment arena, for instance, you can choose between stocks or bonds. When you open a checking account, your bank may offer you the option of a money market. When markets are volatile, CDs might be a good option.

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Earnings Potential

Chances are, if you’re considering a CD, it’s because you’re aware that CDs come with a higher interest rate than savings accounts. It can vary from day to day, as well as from one financial institution to the next, but overall, the savings account interest rate average is currently 0.08 percent. CD rates can go as high as 3 percent, which means over a year’s time, you can make $30 on $1,000 rather than $0.80 with a savings account. Money market accounts are another high-interest savings option, but the minimum balance for those is usually extremely high.


Convenience is one of the biggest sticking points of CDs. Whereas savings accounts let you withdraw and deposit money whenever you want, CDs are more of a “set it and forget it” type of account. You choose your term, deposit the money, and then avoid touching it for that time period. Savings accounts and money markets give you unlimited access to your funds, whether that means making deposits every week or withdrawing money every day.

Minimum Required Balance

Lenders often set minimum balance requirements, whether it’s only to open the account or throughout the life of the account. With savings accounts, these balance requirements can be as low as $1, but they’re often tied to getting a certain rate. With CDs, though, you’ll usually see a much higher minimum deposit requirement. Minimum deposits can go as low as $500, but some lenders require $10,000 or more.

Top CD Providers 2019

0.01%-2.25% APY
$500 Min balance for APY
Yes FDIC Member

0.01%-1.85% APY
$1,000 Min balance for APY
Yes FDIC Member

Penalties and Fees

Both savings accounts and CDs put your money in a place where they’re earning money. As a result, you likely won’t face fees on any savings option you choose. However, unlike money markets and savings accounts, CDs come with a penalty if you take the money out early. This is in the form of a loss of the interest you’ve earned during the time it’s been in place, and the extent of the penalty varies from lender to lender. You may also find that if you work with a financial manager, that person charges a fee for tracking down a good CD and managing the process for you.

The good news is, you don’t have to put all your money in one place. You can move a chunk of your savings into a CD, then keep the rest in a traditional savings account or money market, where you can still earn some interest without sacrificing accessibility. Over time, you’ll find a savings plan that works perfectly for your own needs.