What are the differences and/or trade-offs?

4 Answers 4


A CD will give you a higher rate of return. The tradeoff is you cannot access your money until the CD matures.

If you need the ability to get your money, you should choose a savings account. If you won't use your money for awhile, choose a CD.

Right now interest rates are so abysmal, you aren't going to get much return with either (so I would recommend against locking up your money in a CD).


I recommend an online savings account. The money is more liquid without early withdrawal fees and frequently you can get a visa/mastercard check card to access the funds.

Looking at interest rates, ING is currently paying 1.10% and bankrate reports the best interest rate in the country on a 1 year CD is 1.33%. The .23% difference is not enough to convince me to invest in CDs at a fixed rate vs. an online savings account at a variable rate when we are at (or near) the bottom of CD/savings interest rates.

  • An Ally online savings account is currently at 1.29%. I have one and have been very happy with it so far. Free check card that refunds ATM fees too so you don't have to worry about the fact that an Ally ATM doesn't exist.
    – Leboff
    Aug 7, 2010 at 1:39

The answers provided already pretty much answer the differences and trade-offs, and I'd agree with recommending an online savings account like ING because the rate is just about the same as most CDs you'll find right now. It's really a matter of when the CD rate is higher, and you can accept not accessing the money, then the CD is a better value, otherwise go with the savings account.

However, here is an interesting option with CDs that helps with not being able to access the money: a CD ladder. Basically, you get a CD every 3 months (or some other acceptable time frame), starting with 3, 6, 9, and 12-month CDs. When the time is up for each of them, take that money and put it back into a new yearly CD. Eventually you will get to the point when you have all of the CDs long-term, but you'll get some of the money every 3 months. If you need the money, you'll have the option to use it, but you can always just keep it going, too. The exact timing you use depends on your situation, but it's a great way to help get around not being able to access the money for a year or more.


A lot of online savings accounts, and even high-yield checking accounts, have equivalent or better rates than CDs. So, do you research, and I bet you can find a great rate, while keeping your money liquid.

The problem with CDs is that you can't get at your money until the CD matures (without paying penalties). If you can keep the money in a savings (or high-yield checking) account you will be much better off.

Ultimately, a blend of the two approaches may be the best option.

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