When deciding between a regular savings account and a standard CD, or certificate of deposit, there are some major things to keep in mind. If you want higher rates, then certificates of deposit are the way to go. If you want access to your money more frequently, then a savings account is the best route for you.
If you prefer to withdraw funds without any penalty, but still want above average rates, then a no-penalty CD is the way to go. They offer a fixed rate, unlike standard CDs, and give you the option to make one free withdrawal. Continue reading to learn the benefits about each type of account.
The Basics
A no-penalty CD is still a CD but one of its major upsides is that it comes with fixed rate and term length. This means you are guaranteed that rate for the duration of the certificate’s term length. A big difference between this type of CD and a traditional one is that you can withdraw the cash once without losing any money.
A standard CD locks the money that you initially deposit into the account for a specified term in exchange for a fixed rate that is normally much higher than a savings account. If you were to withdraw money from this type of CD, you will be charged a penalty fee for withdrawing money earlier than the term length.
A savings account earns interest and lets you add and withdraw money over a period of time. However, you must keep in mind that there are limits to how frequent you withdraw money. Also, savings rates are not fixed and can change at any time.
When To Choose a No Penalty CD
If you want a fixed rate. Like other CDs, a no-penalty CD will have fixed rates that can benefit you if banks were to change their annual percentage yields (APYs) on savings accounts.
If you want more options over a standard CD. No-penalty CDs allow you to withdraw all of your money at any time during the term length. The catch is, once you do take all of your money out, the account closes. You must also take all of it out at once.
When To Choose a Savings Account
You plan on building your savings up slowly. An important part in saving, is adding money to an account over time. This is what a savings account is built for. You don’t have this option if you choose to go for a CD.
You want the flexibility to make withdrawals. You don’t need to plan when you’ll need money in the future since savings accounts let you withdraw up to six times per month.
Compare Savings Accounts
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Bottom Line
Choosing the right financial product for you doesn’t have to be hard. Especially if you consider the things we have listed above.
A no-penalty CD is a great choice if you want higher rates but think you’ll need the money soon. If you’re not worried about needing a certain amount of money immediately, then go for a traditional CD.
Other than that, saving money gradually means you should go for a savings account because it will allow you to do just that. For more posts like this, check out our list of bank guides!
Know if any banks that let you buy/fund a CD with credit card?