Should You Invest in Certificate of Deposits (CDs) or High Interest Savings Accounts?

An investment decision may come down to choosing between a high interest savings account and a certificate of deposit. Which should you choose? Well, the first thing you should do is to examine the differences between the two.

The longer you agree to let your money sit in a certificate of deposit (CD), the higher the interest rate the bank is willing to pay. This means that in almost all cases a 3-year CD will give you a higher interest rate than a 6-month CD. Also, the bank is willing to give higher interest rates as the amount you are willing to put into a CD increases. High interest savings accounts do not have rate increases for people who are willing to leave the money in there longer. Almost all of the time, CD rates will beat high yield savings account rates, but that doesn’t mean that CDs are better.

It is important to consider liquidity. If you have a lot of cash on hand and you won’t need it for a long time, a certificate of deposit (CD) may suit you just fine. However, if you have a lot of cash on hand and you plan on making a large purchase in the near future, you probably won’t want to lock it up in a CD. You are able to pull your money out of your savings account at anytime without penalty, whereas pulling your money out of a CD early can result in financial penalties. High interest savings accounts let you write a limited number of checks each month. The only way to get cash out of CDs may be to pull your money out early or have the interest gained paid to you in scheduled intervals.

No investment is right for everyone. Look at your individual situation and decide what you want or need out of your investments so you can make intelligent financial decisions.