CDs and savings accounts each offer their own benefits and drawbacks. Here's how to decide which is best for you.
Let's say you have $10,000 to deposit. Here are the things to keep in mind when deciding whether to put it in a CD or a savings account.A CD is a type of deposit account that earns interest at a fixed rate for a set period, known as the CD With a CD, you agree to leave your money in the account for the full term in exchange for an interest rate that's often higher than a savings account. When the term is up, you can withdraw your money or roll it over into a new CD with a new rate.
The main benefit of CDs is that you can lock in your interest rate. Your rate is set when you open the account, and it stays the same even if overall interest rates change. This can be especially lucrative if you. With a savings account, your rate fluctuates based on the federal funds rate, so you can't say for certain how much you'll earn down the road.
However, when you put your money into a CD, it's tied up for the entire term. If you need to access it before the term expires, you maythat could eat into your earnings. So, a CD is best for people who can afford to leave their money untouched for the duration of the term. Early withdrawal penalties can also benefit those who want help resisting the temptation to dip into their savings before they need it.
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