Submitted by First Fed
In today’s financial landscape, many savers are looking for the best solutions to grow their money while keeping it safe. Two popular savings options are certificates of deposit (CDs) or high-yield savings accounts (HYSAs). Both offer distinct benefits and cater to different financial goals. Understanding the differences between them is crucial for making informed decisions about where to grow your funds.
Certificates of Deposit (CDs)
CDs are time-based deposits accounts that can offer a relatively high interest rate compared to other savings accounts. If you can forgo access to your funds for a fixed time, Certificates of Deposit often offer a higher interest rate in exchange. It’s important to choose the term length for your CD carefully because you will not be able to access your funds during that time without incurring a penalty. The set terms usually range between one month and five years, offering enough variety to find a duration that works best for you. Here are some of the benefits CDs offer:
- Fixed Interest Rates: One of the primary advantages of CDs is the fixed interest rate they offer. This means that once you invest in a CD, the interest rate remains constant throughout the term of the CD, providing predictability and stability in returns.
- Higher Interest Rates: Typically, CDs offer higher interest rates compared to standard savings accounts. The longer the term of the CD, the higher the interest rate tends to be.
- Protected Returns: CDs are considered low-risk investments because they are insured by the FDIC up to certain limits. This provides peace of mind to investors, knowing that their principal is protected.
- Discourages Impulse Spending: Since CDs have a fixed term, they discourage impulsive withdrawals. This can be beneficial for individuals who want to stay on track when saving for specific future expenses.
CD rates can change regularly, so it’s beneficial to lock in a high fixed rate when available. First Fed offers competitive CD rates – check out current promotions!
High-Yield Savings Accounts (HYSA)
For those looking for a longer-term solution that allows continual access to funds, an HYSA may be the better choice. As the name suggests, these accounts offer higher interest rates compared to traditional savings accounts. Here are some of the benefits:
- Liquidity: Unlike CDs, which have fixed terms, HYSAs offer liquidity. This means you can access your funds whenever needed without penalties or restrictions, making them suitable for emergency funds or short-term savings goals.
- No Lock-in Period: With an HYSA, there’s no commitment to keeping your money deposited for a specific term. You have the flexibility to withdrawal your funds or add to them at any time, providing greater freedom and control over your finances.
- Competitive Interest Rates: While often not quite as high as those offered by CDs, HYSAs still offer competitive interest rates compared to traditional savings accounts. This allows your money to grow at a faster pace than it would in a standard savings account.
- FDIC Insurance: Similar to CDs, HYSAs are typically FDIC insured, providing a level of security for your deposited funds.
First Fed Sunflower Savings offers a 4.00% APY (annual percentage yield) with just a $100 minimum opening deposit. Sunflower HYSA is available exclusively online or by phone at 800-800-1577.
How To Choose Between Them
The decision between CDs and an HYSA ultimately depends on your financial goals and liquidity needs. Here are some factors to consider:
- Timeline: If you have a specific savings goal with a defined timeline and you don’t foresee needing access to your funds before that time, a CD might be an attractive option due to its higher interest rates. However, if you anticipate needing access to your funds soon or want to maintain flexibility, an HYSA might be a better fit.
- Interest Rate Outlook: Consider the current interest rate environment against expectations for future changes. If interest rates are expected to rise, you may opt for a shorter-term CD or an HYSA to take advantage of potentially higher rates in the future. Or you may benefit from locking into a longer-term, fixed-rate CD if the interest rates are attractive.
- Diversification: It’s also worth considering diversifying your savings across different accounts to balance liquidity, returns, and risk. You might choose to allocate a portion of your savings to CDs for higher returns and another portion to an HYSA for liquidity and flexibility.
Whichever account you choose, investing in a savings account is an important step towards financial wellness. As interest rates rise and fall, it’s important to revisit and reevaluate your savings plans regularly for the greatest returns. For the latest rates visit First Fed Certificates of Deposit (CDs) and Sunflower Savings.
First Fed is a Member FDIC and Equal Housing Lender.
