Certificate of Deposit Vs Savings Account: What Fits You?

For most people, the idea of investing is basically the same as saving up money. However, there are other ways for you to invest your money without really having to undergo a lot of risk. One such way is through certificates of deposit.

First, what is a certificate of deposit? You can consider a certificate of deposit as a time deposit, basically like your usual savings account except that you cannot really withdraw it as you see fit. A certificate of deposit usually allows you to earn a higher interest on your money but at the same time, you are discouraged to alter or withdraw that money before the fixed period of time.

If you are thinking of investing your money, and don't know whether you should go and open a savings account or if it will be better to invest in a CD, then here are some of the pros and cons of the two.

Pros and Cons

Savings accounts and certificates of deposits are all relatively risk-free, meaning if the bank collapses, you don't collapse with it as well and that your money is protected up to a certain degree. These are probably the only risk-free or minimal risk investment strategies that you can find.

One of the biggest difference between a savings account and a CD however is that there is a fixed period of time, between three months to five years, before you can really access the money you invested in a CD compared to the unlimited access that you may have with your savings account. However, banks and other institutions encourage you to invest your money longer by offering higher interest rates, meaning your money will be earning more in the longer period. The same way, a savings account may give you quick access to your money but then you might not be earning as much as you would have wanted compared to in a CD.

So how do you choose?

Your choice will basically depend on two factors: whether you need quick access to your funds or whether you want your money to earn a lot. If you think that you might need the money in the near future, then it may not be a good idea for you to invest in a CD. However, if you won't be using that money and you want your money to earn more while it 'sleeps', then investing in a CD might be the best way for you to go.

Jane Sanders at Certificate of Deposit Rates about getting the best CD rates. Learn more about Certificate of Deposit here.

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