While most people are familiar with a savings account, not everyone knows what a Certificate of Deposit (CD) is, or how similar it actually is to a standard savings account. Over the last couple of decades, CDs have become less common due to historically low interest rates. And by CD we’re not talking about the one you put in a CD player (though those have faded away too), we’re talking about a Certificate of Deposit! There are pros and cons to CDs and Savings accounts, and today we’re going to tell you what they are!

Before we compare the two, let’s make sure everyone knows what a CD is. A CD is a deposit that earns interest over a designated period of time, is not easily accessible and has a fixed withdrawal date. We’ll explain the details of it here shortly, but that is the basic definition of a CD. So without further ado, let’s jump to it!

Pros and Cons of a CD

Pro: Higher interest rate

One of the big benefits to opening a CD instead of a normal savings account is the higher interest rate. This means more money in your pocket when the CD matures. That, in itself, seems to make a CD the better option, but there’s obviously much more to it, otherwise no one would have savings accounts.

Con: Locked in for a period of time

Once you make the deposit, you’re unable to withdraw the funds prior to the maturity date without paying a penalty. If you’re worried you might need the funds before that date,  then perhaps a traditional savings account is best for you. Now, if you have money saved up elsewhere, this likely doesn’t affect you as much. That being said, there are different lengths of time for which you can open a CD. Central offers terms as short as 90 days, and as long as five years. This allows more flexibility for you and your money, so don’t let the maturity date deter your interests.

Pro: Great long-term benefits

It’s been touched on already, but we’ll make sure we’re clear. The higher rate makes a CD a great option for long-term savings goals without putting money into riskier investment opportunities. Putting money in a secured account where the interest is fixed is more stable. It’s also a great option for saving for a vacation that is years away, a college fund, or even saving for retirement.

Con: Normally requires larger sum to open

CDs normally require you to make a larger deposit than a savings account to open the account. This may be an issue if you don’t want to have a large sum of cash locked-in for an extended period of time. The smallest CD offered at Central is a minimum of $1,000 to open, while a savings account has a minimum of $30 to open.

Neutral: Fixed rates

One of the benefits, or perhaps a drawback, of a CD is the fact that the interest rate remains fixed for the term of the CD. When the economy slows and banks need less money to lend, the interest rates paid on savings accounts and CDs will decrease. If you locked in your fixed-rate CD during a period of retreating rates, you will be very happy with your decision. To the contrary, when the economy is humming, and banks are making more loans, they need more deposits, which results in higher rates paid on your deposits. When you lock in a fixed-rate CD and the prevailing rate increases by 10 or 20 basis points, it may sting.

Pros and Cons of Savings Accounts

Pro: Money is available to you

This is the biggest difference between a savings account and a CD… you DO have immediate access to the money in the account. If you get in a bind you can make a withdrawal to help get you through a rough patch. This makes a savings account much more appealing for those without little to no financial cushion.

Con: Limit of 6 transactions a month

Some consider this a pro since you cannot withdraw money from a CD without paying a penalty. So, it depends how you look at the situation. To be clear, this isn’t a rule made by your bank, it is a law that all banks have to follow. It encourages savings. And just because you CAN make withdrawals doesn’t mean you have ultimate freedom to do so. If you go over 6 debits from your savings account in a month, your account could be penalized. In the event that you continually withdraw money more than 6 times a month your bank could reach out and change the savings to a deposit, or transaction, account. In some cases banks will have a policy to shut the account down. You will be warned and notified before this is done, so don’t worry too much about a sudden closure of your account, but you will want to limit the account usage to fewer than 6 withdrawals a month.

Pro: Great for short-term savings goals

If you just need a little help saving the last few pennies to achieve your savings goal, a savings account could work well for you. It also is a good account type to open for an emergency fund because of the accessibility to your funds. A savings account would also be a good place to temporarily put money so you can earn a little interest.

Con: Lower interest rate

A savings account will have a much lower interest rate than that of a CD. If you don’t put much into the savings account, you will not notice an increase resulting from interest deposits into the account. When you’re trying to get the maximum return, this is where a CD would be a better option.

Pro: Can be opened for various amounts

Like we mentioned earlier, CDs require larger initial deposits to be made while savings accounts can be opened for as little as $30. If you’re just beginning to save up money, a savings account would be a better option since you don’t need as much to start the account. If this is you, set a goal to turn your new savings account into a CD down the line!

Con: Minimum balance requirement

While it might be nice to open an account for as little as $30, some banks have a minimum that needs to be kept in the account to avoid a monthly fee. For instance, if the balance ever dips below $100 at any point during the month, there could be a $2 fee assessed to your savings account. Both the minimum balance limit and the fee vary by institution.

Now that you’re well-versed in the basics of saving money, visit one of our branches, or call our toll free number at 1-888-262-5456 to learn how to start saving today. To see our current rates visit our website at https://centralnational.com/rates.asp

CD vs Savings Account
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4 thoughts on “CD vs Savings Account

  • June 5, 2020 at 9:14 am

    Guess your current rates for CDs and Savings are secret. Did n’t used to be. Bad move on your part.

    • June 11, 2020 at 10:39 am

      Hi John, our rates have always been published on our website at https://centralnational.com/rates.asp

      It looks like we just failed to include a link to that in this blog post. Sorry for the inconvenience! Thanks!

  • October 14, 2020 at 10:30 am

    Thanks for the information concerning CD’s vs Savings. I an pleased to receive your new news letter. Thanks CNB !

    • November 5, 2020 at 3:07 pm

      You’re welcome!


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