High-yield savings accounts vs. CDs: What's the difference?

by
Amanda Gile
,
Series 6 and 63 insurance license

High-yield savings accounts vs. CDs: What's the difference?

Most banks and credit unions offer certificates of deposit (CDs) to their customers, and providers typically pay out higher interest rates on these compared to traditional savings accounts. In exchange for these higher rates, the investor commits to keeping their money in the account until the maturity date. 

A high-yield savings account (HYSA) is a competing product that also pays a better interest rate than a traditional savings account. We’ll compare both products — CDs versus high-yield savings accounts — to help you choose one that fits your financial goals best.

What’s a high-yield savings account?

A traditional savings account typically offers an annual percentage yield (APY) of .01% to .05% per year. To put this in perspective, if you place $1,000 in a savings account at the end of the year, you’ll earn 10 to 50 cents in interest. While many people keep some cash in a traditional savings account for an emergency fund, the low interest rates typically don’t keep up with inflation. 

On the other hand, a high-yield savings account (HYSA) offers higher interest rates than a traditional savings account. Financial institutions may sometimes base their HYSA interest rates on the amount you maintain in the account. For example, a high-yield savings account might offer one interest rate for balances less than $250,000 and a higher interest rate if you maintain a balance greater than $250,000. There’s no early withdrawal penalty for taking some or all of your money, and HYSA providers let you keep all the interest you earned. 

The Federal Depository Insurance Corporation (FDIC) insures bank HYSAs, and the National Credit Union Administration (NCUA) insures credit union HYSAs. The FCIC and NCUA insurance limit is $250,000 per account per person. This insurance protects your money against bank insolvency, making a high-yield savings account a safer option for amounts up to $250,000. 

What’s a certificate of deposit?

A CD is another type of savings account that banks or credit unions offer. Here are some of a CD’s core components:

High-yield savings account vs. CDs

One of the most significant differences between CDs and high-yield savings accounts is that you can withdraw money from a HYSA without paying a penalty. However, both have advantages and disadvantages:

CD pros

CD cons

HYSA pros

HYSA cons

What’s an annuity?

An annuity is a contract with an insurance company, and it works differently than a CD or high-yield savings account. Annuities have an accumulation phase and a payout phase. During the accumulation phase, your deposit grows. Once the annuity reaches the maturity date, it can enter the distribution phase. Depending on the terms of the contract, you may receive all your money in one lump sum or as a series of payments. 

Say you put a $100,000 initial deposit into a 5% fixed annuity with a maturity date of 10 years that will pay you 240 monthly payments after it matures. During this 10-year period, the value of your annuity grows to $162,889. While it’s paying you monthly payments of $1,075, the remaining balance can still earn interest. 

How do annuities compare to CDs and HYSAs?

Annuities have some advantages compared to CDs or HYSAs, but they also carry some risks.

Annuity pros

Annuity cons

This communication / article is for informational / educational purposes only.

It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice.

The Gainbridge® digital platform provides informational and educational resources intended only for self-directed purposes.

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Amanda Gile

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Amanda is a licensed insurance agent and digital support associate at Gainbridge®.