Both savings accounts and certificates of deposit (CDs) can keep your money safe and ensure great interest rates. Both of them are preferred by people to put aside part of the income to deal with possible future needs. However, their features are different. Therefore, it becomes crucial to know which is best for your money.
While deciding between a savings account and a certificate of deposit, you should consider two key factors such as interest rates and access to money. If you are looking for higher interest rates, standard CDs could be the best choice, and opting for online open savings accounts ensures easy and increased access to your funds.
As the name suggests, no-penalty CDs offer fixed rates, and there is flexibility to make one free withdrawal. While exploring an online open saving account, you can grow your money with ongoing contributions and withdraw consistently.
Here are some of the basics to help you make an informed decision.
- No-penalty CD:
No-penalty CD is a form of financial investment tool that comes with a fixed interest rate and term length (duration), which means that the rate set during the certificate term is guaranteed. However, there is only one free withdrawal facility, while standard CDs charge early withdrawal penalties.
Hence, in comparison with a savings account, the interest rate is highly competitive and guaranteed.
- A savings account
There is flexibility when you go for an online open saving account. It allows you to deposit and withdraw money over time, although there are withdrawal limits. Unlike a no-penalty CD, the interest rates of a savings account are not fixed. They are subject to changes due to market conditions.
The right time to choose a no-penalty CD
- Fixed interest rate:
If you are looking for an investment option that guarantees a fixed interest rate, then a no-penalty CD is the best option. However, it can benefit you if your bank drops its Annual Percentage Yields (APYs) on savings accounts.
- There is no need to regularly access funds.
A No-penalty certificate of deposit restricts investors from accessing funds regularly. Like a savings account, you cannot dip into your savings and withdrawal anytime. If you wanted to withdraw, it will have to be in full, and the no-penalty CD account will have to close.
The right time to choose a savings account
- Gradual contribution plan
You can opt for an online open saving account when you have a plan to build your savings. The best part about a savings account is that you have the flexibility to deposit funds over time.
- Flexibility to make withdrawals
Unlike no-penalty CDs, you are free to withdraw funds from your savings account whenever you need cash. However, there is a federal withdrawal limit, which is around 6 six times per month.
No-penalty CD vs Savings Account
|Information||No-penalty CD||Savings Account|
|Interest rate||Fixed||Subject to changes|
|Key features||Fixed rates and no penalties||Easy access to funds with flexibility to contribute over time|
|Withdrawal limit||On withdrawal (subject to closure of account)||Six withdrawal per month|
|Term length||Short-term||Can be both short and long-term|
Both a no-penalty CD and a savings account can ensure high interest rates and flexibility. However, you have to choose an option that best serves your needs.