So, you’ve got some extra cash sitting around and you’re thinking about investing it. But where should you put it? CDs (certificates of deposit) and high-yield savings accounts are both popular ways to earn some interest on your money. Let’s take a look at the pros and cons of each to help you decide which one is best for you.

CDs: Steady, stable, reliable

CDs are like fixed-term savings accounts. You deposit a lump sum for a specific period of time (e.g., 6 months, 1 year, 5 years), and in return for that commitment you get a higher interest rate than a regular savings account. They’re predictable, like a longtime friend who always shows up on time, but never surprises you or does anything exciting.

Pros

  • Higher interest rates: CDs usually offer higher interest rates than regular savings accounts.
  • Safety: CDs are FDIC-insured, so you can rest easy knowing your money is safe.
  • Predictability: You know going into it exactly how much interest you’ll earn over the term.
  • Cons:
  • Penalty for early withdrawal: If you need to get access to your money before the term ends, you’ll probably have to pay a penalty.
  • Limited liquidity: Your money is basically locked up for the term of the CD.

High-yield savings accounts: the flexible friend

High-yield savings accounts are like regular savings accounts, but with a higher interest rate. They give you easy access to your money and usually don’t have any minimum balance requirements. They’re more like a fun and unpredictable friend who’s totally cool with it if you change plans, but you can’t count on them to be consistent.

Pros

  • Liquidity: You can withdraw your money at any time without penalties.
  • No minimum balance: You don’t need a large sum to start earning interest.
  • Convenience: High-yield savings accounts are easy to open and manage.
  • Cons:
  • Lower interest rates: While they offer higher rates than regular savings accounts, they may not match the rates of longer-term CDs.
  • Potential rate changes: Interest rates on high-yield savings accounts can fluctuate.

So, which one is better?

The best option for you really depends on your financial goals and risk tolerance. If you have a lump sum of cash you don’t need for the next few months or years a CD might be a good choice for a higher return. But if you need easy access to your money (or even think you might) and are willing to accept a slightly lower interest rate for that flexibility, a high-yield savings account could be a better fit.