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And both are protected with FDIC insurance to keep your funds safe.
However, they have different approaches.
What Is a No-Penalty CD?
Traditional CDs penalize you for withdrawing funds before the end of the term.
Most will penalize you with a fee equivalent to a few months of the interest you earned.
Some may even charge a flat fee and cause you to lose money.
But no-penalty CDs remove that fee and give you more flexibility in how you access your funds.
Here are some other key points to know:
What Is a Savings Account?
A savings account is an interest-bearing deposit account that lets you earn interest on your deposited cash.
Savings accounts are available at most banks and credit unions.
They may be linked to a checking account when you first open an account with the financial institution.
With no-penalty CDs, your rate is fixed.
This means it wont change for the duration of your term.
But the rate will vary, depending on the term length chosen.
Savings account interest rates are almost always variable meaning the rate can change at any time.
Rates typically move up or down with thefederal funds rate set by the Federal Reserve.
No-penalty CDs and savings accounts have comparable APYs and vary for each financial institution.
However, a no-penalty CD may be advantageous if you believe the Federal Reserve will cut rates.
Similarly, high-yield savings accounts may be better if you think the Fed will raise rates.
you might withdraw your funds at any time with no extra fees.
But you might need to withdraw your entire deposit to access your funds.
Your funds are more accessible in a savings account.
Account holders can set up automatic transfers from their savings accounts to other accounts.
Risk and Safety: Which Is Safer for Your Money?
Both accounts are insured by the FDIC, so you wont have to worry.
The FDIC insures up to $250,000 for CDs and savings accounts.
You wont lose money with these investments, but it is possible that youlose purchasing power.
Not every savings account or CD keeps up with inflation, and you also have to consider taxes.
A 4.00% APY will have a lower real return since interest is treated as ordinary income.
The other risk is opportunity cost.
Other investments like stocks have the potential to outperform CDs and savings accounts by wide margins.
CDs and savings accounts are also great for emergency funds.
You might as well earn extra interest on the money you plan to store anyway.
Short-Term vs.
Long-Term Goals
Savings accounts are optimal for short-term goals since the cash is readily accessible.
However, CDs are more suitable for medium-term goals.
Investors with long-term goals may want to consider equities since that asset class can produce higher returns.
Both accounts can help you earn more interest and encourage you to save.
It comes down to your personal situation and financial goals to pick one over the other.
FAQ
Marc Guberticontributed to the reporting for this article.
Information is accurate as of Feb. 25, 2025. it’s possible for you to learn more about GOBankingRates processes and standards in oureditorial policy.
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