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CD or Savings Account? Which One Should You Choose in 2025?

Compare CDs vs. savings accounts to find the best option for your financial goals. Learn about interest rates, accessibility, and benefits in this 2025 savings guide.
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Written by Rob Sabo
Financial Expert
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Managing Editor
Why MoneyRates is your trusted source
Key Takeaways
  • Compare CDs and savings accounts to choose the best option based on your financial goals, liquidity needs, and interest rate trends in 2025.
  • CDs offer higher, fixed interest rates for long-term savings but limit access to funds, while savings accounts provide flexibility for short-term needs.
  • Both savings options are federally insured, making them secure choices, but understanding penalties, rates, and access is key to maximizing benefits.

The high interest rates that held strong throughout the past few years have been good news for savers. Strategic shifts in federal monetary policy at the end of 2024 pushed interest rates downward, but they are still expected to be elevated throughout the year, making 2025 yet another good year for savers.

Certificates of deposit and savings accounts are common options for saving money. Both savings products will be impacted by any additional downward movement in interest rates. This guide can help you decide whether a CD or savings account is the best option to help you meet this year’s financial goals.

Comparison Table: CDs vs Savings Accounts

What Are CDs and Savings Accounts?

Savings accounts and certificates of deposit are perhaps the two most common savings products banks and credit unions offer. Both allow savers to earn interest on their deposit balances, but the amount of interest earned can vary greatly between the two types of accounts.

Definition and Basics of CDs

Certificates of deposit are savings accounts that hold your money for a predetermined length of time. When the holding period ends, savers get their initial deposit back in full and the interest they’ve earned.

Key points of CDs:

  • Fixed-term deposit accounts with fixed interest rates
  • Funds are not accessible, and there is typically a penalty for early withdrawal
  • Interest rates are predicted to fall slightly in 2025 as the Federal Reserve makes a few additional modest interest rate cuts.

Definition and Basics of Savings Accounts:

Banks and credit unions offer savings accounts for customers to park their money. Traditional savings accounts pay almost negligible interest, while high-yield savings accounts pay a much higher interest rate.

Main points of savings accounts:

  • No penalties for withdrawing funds, but transactions are usually limited to six per month.
  • Traditional savings accounts have low interest rates, but your money is easily accessed.
  • Money can be deposited by direct deposit, mobile banking, ATM deposit, or in-branch.
  • Three interest rate cuts by the Federal Reserve lowered savings account interest rates from 2024 highs, but the Fed halved its projected rate cut schedule for 2025, meaning it will be another good year for savers with interest rates still solidly above 4% at certain financial institutions.

Key Differences Between CDs and Savings Accounts

CDs and savings accounts both allow you to stash extra money and earn some additional money through interest on your principal, but the rules governing the two savings products are substantially different in certain areas.

Accessibility and Liquidity

Accessibility and liquidity are very different with savings accounts and CDs. One product locks your money in, while the other allows you to pull it out whenever you choose.

  • CDs: Funds are locked until maturity unless you are willing to pay a penalty. 
  • Savings accounts: You can withdraw funds at any time, but you may only get six transactions per month.

Interest Rates

The new year is predicted to be yet another good year for savers. Interest rates for CDs and other savings products won’t hit the highs set in the past few years, but they’ll still be compelling for both CDs and high-interest savings accounts.

The yield on CDs remains high. A rough rule of thumb is that longer term, higher interest rate. However, the turbulent rate environment of 2024 flipped that script, and savers who spend little time searching should have little trouble finding one-year CDs with higher interest rates than two-, three-, and five-year CDs.

Safety and Security

Certificates of deposit and savings accounts are insured up to $250,000 by the Federal Deposit Insurance Corporation. Accounts with joint owners are insured up to $500,000.

Minimum Deposit and Balance Requirements:

Minimum deposit requirements for CDs vary by financial institution but are usually between $500 and $1,000. Traditional savings accounts usually have no minimum deposit requirement, but savers often have to carry a certain minimum balance to avoid incurring monthly service charges. High-yield savings accounts may have a minimum balance requirement to earn the highest tier of interest.

Pros and Cons of CDs and Savings Accounts

Depending on your financial goals, a certificate of deposit or savings account could be a beneficial place to park your money, but both savings products have pros and cons.

Certificates of Deposit

Pros

  • Interest rates are substantially higher than standard savings accounts
  • Returns are guaranteed
  • Your money is federally insured
  • Your deposit is not subject to market volatility

Cons

  • CDs are illiquid
  • There is a penalty for early withdrawal

Savings Accounts

Pros

  • You can easily access your funds without penalty
  • You can link your savings account to a checking account to provide overdraft protection
  • Increased liquidity allows for emergency funds if necessary

Cons

  • Interest rates are lower
  • Rates could fall further with rising inflation or additional federal interest rate cuts

Which Banks Have the Best CD Rates?

Hundreds of banks offer CDs, and there’s fierce competition among them to offer the best rates. Use our MoneyRates CD listing below to sort through the list to find a CD that fits your financial goals.

4 Factors to Consider When Choosing a CD or Savings Account

The decision to open a CD or savings account shouldn’t be taken lightly since they operate so differently. Consider these four factors before making a decision.

Your Financial Goals

CDs are a smart choice for long-term savings goals because you’ll know exactly how much yield the CD will deliver over its term and when you’ll be able to access the full principal without penalty. A savings account may be the better option for shorter-term savings goals.

Tolerance for Risk

Since both products are federally insured, CDs and savings accounts are basically zero-risk savings products so long as account balances are less than $250,000. CDs have liquidity risk, though, so make sure you can afford to lock up your money for the length of the CD.

Economists have predicted that the Federal Reserve will make two to three additional interest rate cuts in 2025, but the timing of those cuts has yet to play out. The Fed meets eight times annually, and the first rate cut of the year may come in March. 

Emergency Fund Needs

With a CD, your money isn’t accessible unless you are willing to pay an early withdrawal penalty that will erode your CD’s overall yield. With a savings account, you can pull out your money as needed – a handy caveat in times of emergency. Having an emergency savings fund in place before opening a certificate of deposit increases your overall liquidity.

5 Tips for Making the Right Choice Between CDs and Savings Accounts

Both savings products can help you meet your financial goals for 2025. Follow these five tips to maximize your savings.

1. Valuate your short-term and long-term financial needs. Keep enough money at hand to meet any financial emergencies before investing in either savings product.

2. Why choose? CDs and savings accounts can help you meet different financial goals. Use a savings account for money you may need to access, and put the rest into a CD – or multiple CDs.

3. CD laddering is an advanced savings strategy in which you purchase multiple-term CDs of varying amounts. You’ll have staggering maturity dates and roll over your CDs into new ones as each matures. This strategy increases liquidity while capitalizing on today’s high interest rates.

4. Review and compare interest rates regularly to ensure you are getting the best rates. You may have to open CDs at different financial institutions to ensure you get the highest rates possible.

5. Use a CD interest calculator to determine potential earnings. CDs deliver fixed returns. Use that knowledge to create a CD ladder that helps you maximize returns in 2025.

Making the Smart Choice: Aligning CDs and Savings Accounts with Your Financial Goals

Certificates of deposit and savings accounts are common savings products offered by banks and credit unions (CDs at credit unions are called share certificates). CDs offer much higher interest rates than traditional savings accounts, but some drawbacks exist: You can’t access your money before the CD matures without incurring a penalty. 

Both savings products can slightly increase your net worth and help you meet modest financial goals in 2025. The decision to use a CD or savings account depends on your liquidity. You’ll want to make sure to keep enough cash on hand to meet any situation before opening a CD or creating a CD ladder.

Read through these pages to learn more about savings accounts, certificates of deposit, and how interest rates affect both. Consult with a financial advisor or banking expert if you need additional information.

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Contributor Writer
Rob Sabo has been a Nevada-based business reporter for nearly two decades and full time freelance writer since 2017. He writes on a wide range of financial topics, including investing, taxation, personal finance and retirement planning.