What’s the best way to make your money work for you?
Whether you’re saving for an emergency or putting aside funds for a vacation, saving money is a must. When it comes to how to save, two of the most popular options are savings accounts and certificates of deposit (CDs). Understanding the benefits of both can help you choose the best option for your financial situation.
What is a savings account?
A savings account offers flexibility, allowing you to access your money whenever needed. According to NerdWallet’s Margarette Burnette, a savings account is a good option for emergency expenses like home repairs or medical bills. Some accounts may limit the number of withdrawals you can make in a month, typically maxing out at six. Exceeding this limit may result in a small transactional fee. However, the Federal Reserve temporarily suspended the six-withdrawal rule in 2020, giving financial institutions the discretion to lift this limit.
While savings accounts are more liquid than CDs, they generally offer lower interest rates. The average savings account yields less than 0.10% interest, but high-yield savings accounts can offer more.
What is a certificate of deposit (CD)?
If you’re looking to earn more interest, a CD might be the right choice. A CD locks your money into an account for a fixed period, ranging from a few months to five years. Early withdrawals are possible, but they usually come with penalties that could offset the higher interest earned. That said, CDs typically pay higher interest rates than savings accounts, with the rates rising the longer the term. A bump-up CD lets you opt for a higher interest rate during the term if rates increase.
What’s the best strategy for you?
If you’re undecided between a savings account and a CD, consider having both. Using a combination of both allows you to access some funds easily while benefiting from higher interest rates with a CD. Many savings accounts don’t require a minimum deposit to start, and opening a money market account with a larger sum could earn you a higher interest rate.
For those with larger sums to save, a strategy like the CD ladder can help maximize your interest earnings. By spreading your funds across several CDs with different maturity dates, you can enjoy higher interest while maintaining some flexibility with your funds.
Looking to get the most out of your savings?
Talk to a representative at Five Star Bank online or in your local branch to explore your options for savings accounts, CDs and more! We can help you create a strategy that fits your goals and helps you grow your money.
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