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While the interest rate climate of the last two years has been largely unfavorable for borrowers, it’s been a boon for savers who have been able to capitalize on it. With returns on many savings vehicles exponentially higher than they were just a few years ago, savers have been able to buffer the costs of elevated inflation and interest rates with higher earnings on their money.
But while certificates of deposit (CDs) and high-yield savings accounts are two of the best ways to earn elevated rates right now, the timing behind opening an account is critical to get right. Because they operate in different ways and have different features, their timely benefits will not always align. To that end, many savers may be better served by opening a high-yield savings account this spring instead of a CD. Below, we’ll break down three reasons why this may be the better option for you.
See how much more you could earn on your money with a top high-yield savings account here.
Why a high-yield savings account may be better than a CD this spring
Here are three reasons why a high-yield savings account may be the preferred option this season:
Rates are variable
While the very highest rates generally come attached to CDs — not high-yield savings accounts — there’s a catch. To secure that rate, you’ll need to leave your money untouched for the full CD term or risk having to pay an early withdrawal penalty. And while a locked rate may be attractive at times, it may not be as beneficial right now.
That’s because the prospect of an interest rate hike suddenly looks a lot more realistic than it did earlier this year, thanks in part to stubborn inflation. The Federal Reserve once again elected to keep interest rates untouched this week, but if they eventually rise, even slightly, high-yield savings accounts will be better suited to take advantage. Rates on these accounts are variable and subject to change with the rate climate. So, if rates rise, so will what you can earn with a high-yield savings account — all while a CD stays stuck at the rate the account was opened with.
See what rate you could get on a high-yield savings account here now.
Inflation is still a concern
Hope was high at the start of the year that this inflation cycle was on a permanent downward trend. But the first three reports of the year showed it still coming in hot, with prices still high in a variety of sectors. With inflation still a concern, then, it’s likely better to have your money in an account that you can easily add to or withdraw from without paying a penalty. High-yield savings accounts can provide this functionality as they operate just like regular savings accounts do (albeit at a higher interest rate). CDs, however, can not.
It’s the only (flexible) high interest rate alternative
Regular savings accounts have an average 0.46% interest rate right now. So not only would you not be keeping pace with inflation with such an account, but you would technically be losing money. High-yield checking accounts, meanwhile, have attractive rates but typically require more involvement and have tighter restrictions to earn that rate than high-yield savings accounts do. And CDs, as noted, come with other concerns. So compared to the alternatives, high-yield savings accounts are arguably the only flexible high-interest rate alternative to pursue this spring.
The bottom line
While CDs and high-yield savings accounts both have attractive features for savers, many would benefit from the timely benefits of the latter this spring. Because rates are variable (and could rise in the months to come), savers will be better positioned than they would be if they locked their money away in a CD. And with inflation still a concern and the alternatives less beneficial, a high-yield savings account is arguably the only flexible high-interest earning account to pursue right now.
So don’t wait. Get started with a top high-yield savings account online today.
Matt Richardson is the managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
