Forget CDs. Even with falling rates, a savings account is a better option

The Federal Reserve has finally decided to take the US economy into a cycle of rate cuts. On September 18, it chose to cut its benchmark interest rate by half a percentage point, and many consumer interest rates tend to move along with the federal funds rate.

This is especially true for account fees such as savings accounts, CDs, and money market accounts. You may have already noticed rates falling on these, and wondered if you should rush to lock your savings into a CD (which has a fixed rate, as opposed to variable rates on checking accounts saving). For most people, the answer is no.

Here’s why a humble High Yield Savings Account (HYSA) is often the best choice for your cash.

Savings accounts are accessible

The first reason to opt for a savings account over a CD is its affordability and affordability. Click here to open one of the best high yield savings accounts for as little as $0 and start earning interest on your savings.

Our picks for the best high-yield savings accounts of 2024

American Express® High Yield Savings APY 4.10% Fee information Circle the letter I. Annual percentage yield of 4.10% to October 13, 2024 Member of the FDIC.	APY 4.10% Fee information Circle the letter I. Annual percentage yield of 4.10% to October 13, 2024	Min. to win $0
Capital One 360 ​​Performance Savings APY 4.10% Fee information Circle the letter I. Check the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of September 27, 2024. Rates are subject to change at any time before or after account opening. Member of the FDIC.	APY 4.10% Fee information Circle the letter I. Check the Capital One website for the most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of September 27, 2024. Rates are subject to change at any time before or after account opening.	Min. to win $0
CIT Platinum Savings APY 4.70% APY on balances of $5,000 or more Fee information Circle the letter I. 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY Min. to win $100 to open an account, $5,000 for max APY Member of the FDIC.	APY 4.70% APY on balances of $5,000 or more Fee information Circle the letter I. 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY	Min. to win $100 to open an account, $5,000 for max APY

CDs, on the other hand, often have a higher minimum opening deposit—some of the best CDs require you to deposit $500 or as much as $2,500 or more to open the account. This can be a problem if you’re new to CDs or to saving money in general, especially if the best rate you can find for a given CD term is with a bank that has a high deposit requirement that you can’t meet.

Savings accounts keep your cash liquid

Savings accounts are also a great place to keep your emergency fund and other money you’ll need sooner rather than later. You may have a limited number of withdrawals you can make in a given month, thanks to the old Regulation D rules, but even if you can’t withdraw more than six or 10 times a month, it’s likely not a problem months But if your emergency fund is in a CD, you’ll have to pay an early withdrawal penalty to access it.

Withdrawing your cash from a HYSA online will likely involve an extra step (ie sending money to a linked account from which you can withdraw), but it doesn’t have to be onerous.

I wanted the option of accessing my savings through a debit card and ATM withdrawals, so I opened a checking account with the same online bank. Now I can withdraw from savings just by logging into my account on the bank’s website or mobile app and transferring it from savings to checking.

CDs are better for these circumstances

So why bother with CDs? Should you forget they exist? Definitely not! CDs can be part of your financial picture, but they are best suited to specific circumstances.

Let’s say you have $10,000 that you want to use as a down payment on your car in a year. One year isn’t enough time to make investing that $10,000 in the stock market a good idea—there’s too much risk of short-term stock loss.

But now you could put your $10,000 into a 1-year CD and lock in a rate of, say, 4%. You’ll earn more than $400 on your money, and if you open your CD with an FDIC-insured bank, you won’t run the risk of losing it to a bank failure.

Retirees should also consider CDs, because they can help prevent inflation from eroding the value of cash. If you want to generate regular income (from interest payments) and ensure that short-term savings have a fixed interest rate, CDs can be a great tool to achieve this.

Keep the savings

Yes, savings account rates are coming down now – my high yield savings account just dropped from 4.20% to 4.00%. It’s a pity. But I am still waiting for this account. It’s where I keep my emergency fund, tax payments, and money for short-term goals like travel.

If you don’t already have a high-yield savings account, you definitely need to. Even after the federal funds rate falls further, a HYSA will still be worth it.