Two women sit on a couch and review an interest rate graph on their mobile phone.

The Difference Between Savings and a CD


CD vs. savings account: which option should you choose? Here’s what to know about these 2 savings account options.

With households facing higher expenses for things like gas and rent in an uncertain economy, it makes sense to park your cash in a place that is both safe and at the same time lets your money work for you. There are two great options that let you rest easy about the safety of your money while earning interest: a general savings account or a Certificate of Deposit (CD).

To help decide whether a savings account or a CD is right for you, remember the expression:

"Time is money. The more time you are willing to leave your money untouched, the more interest you will receive on those deposits."

What Is a Savings Account?

A savings account is a financial product offered by banks and credit unions that allows individuals to deposit and store their money securely while earning a modest interest rate. It provides a safe and accessible way to save money, with easy withdrawals and a low risk compared to other investment options.

A great general savings account option is the Fifth Third Momentum Savings Account, which is a goal-oriented savings account that can help you reach financial milestones with easy ways to save. Once you’re signed up for this account, create a savings goal using the Fifth Third’s Personal Savings Calculator to determine payments and duration, and then contribute funds with Smart Savings: a feature that lets you designate how much money to save and moves the funds into savings from your checking account automatically.

What is a CD?

CDs are similar to savings accounts in several ways. Like savings accounts, they are protected against loss up to $250,000 by the FDIC, are easy to open online, require relatively low minimum deposits and pay interest. CDs allow individuals to invest a specific amount of money for a fixed period, known as the "term." In return, the bank or credit union pays the account holder a higher interest rate than what is typically offered in a regular savings account.

CD vs. Savings Accounts

CDs differ from general savings accounts in a few ways:

  • Interest Rates: CDs typically offer higher interest rates compared to regular savings accounts. The trade-off is that your money is locked in a CD for a fixed period, known as the "term," which can range from a few months to several years. In contrast, regular savings accounts offer lower interest rates but provide more liquidity, allowing you to withdraw your funds at any time.
  • Liquidity: Savings accounts are highly liquid, allowing you to withdraw money at your convenience, which makes them suitable for emergency funds or short-term savings goals. CDs, on the other hand, usually have penalties for early withdrawal. If you need to access your money before the CD matures, you may forfeit a portion of the interest earned.
  • Term: Savings accounts have no fixed term; your money can stay in the account indefinitely. CDs have a predetermined term, and you commit to leaving your money untouched for that specific period.
  • Risk: Both savings accounts and CDs are considered low-risk, as they are typically insured by the FDIC (in the United States) for up to a certain limit, providing a level of security for your funds. However, because of the higher interest rates, CDs may be seen as a slightly riskier option than regular savings accounts due to the potential loss of interest if you withdraw early.

When Does a CD Mature?

When your CD matures, you can withdraw all your funds to buy that dream home or renew the CD for another period. Fifth Third’s Maturity Calculator can help you determine the final value of your CD if you hold it to maturity. If you know you want to reinvest those funds in another CD at the end of the holding period, you can select an automatic renewal feature.

There is a strategy called a CD ladder, which spreads your funds across CDs with different maturity dates. This approach offers higher returns than a single short-term CD and gives you the freedom to periodically access funds for an expected or planned expense. The CD Ladder Calculator shows exactly how laddering might help your money grow.

To decide whether to open a traditional savings account or a CD, it helps to determine your financial priorities, preferences, and the amount of time you are willing to commit to leaving your money in the bank. Is the convenience of having immediate access to your money most important? If so, a savings account is probably the right choice. Are you willing to forego convenience for a higher rate of return? If so, a CD might be more appropriate.

Aside from Certificates of Deposit, Fifth Third Bank offers a variety of savings account options. Learn about each type of account, find one that best suits your savings needs and goals, and schedule an appointment to open an account.