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Today’s best rates for savings accounts and certificates of deposit are a far cry from last year’s rates of 2%. And rates across most banks will likely keep dropping.
"It will be increasingly uncommon to find institutions that are willing to pay 1%" on a savings account, says Mike Schenk, chief economist for the Credit Union National Association.
The reasons are many — the Federal Reserve dropped its benchmark rate in March, the pandemic-related economic crisis continues — but rates aren’t the only strength of savings accounts and CDs. Here’s how else they help you save.
Savings accounts provide cash access and tools
Taking a savings account for granted is easy to do; they’ve been around a long time, and most Americans have one. But it bears noting how savings accounts can help our financial lives:
Easy access to funds: Unlike with brokerage accounts, you don’t sell investments in order to convert your money back to cash; savings accounts keep money as cash. And you can easily transfer money to your checking account as needed.
Useful barrier to spending: A savings account, which lacks a debit card, offers fewer ways to withdraw than checking accounts. And historically, savings accounts had a limit of six withdrawals per month, although in April 2020 the Federal Reserve stopped requiring banks to enforce this limit. Having an account separate from your checking can help you intentionally save, instead of blurring the divide between your spending and saving funds.
A destination for automatic transfers: If you would benefit from a hands-off approach to saving money, you can set up recurring transfers from your checking to savings accounts. Or split direct deposits between accounts.
Option for multiple accounts for goals: Open several accounts and dedicate them to different spending categories, like an envelope budgeting system. One could be a backup for your checking account, one for vacation and one an emergency fund.
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"How you use these tools should be based on how you manage your money,” says Saundra Davis, founder and executive director of Sage Financial Solutions, a San Francisco Bay Area-based nonprofit focused on financial coaching. If you don’t mind tracking multiple accounts, go for it.
» More from NerdWallet: See our list of the best high-interest accounts
CDs can save you from yourself
CDs require you to commit to keeping a fixed sum under lock and key for a specific time period (here’s how to open one). Even when rates are low, this type of savings account has benefits:
Freeze some savings: CDs lock up your money for a term you choose, generally from three months to five years. This can make sense if you have a fixed sum intended for a future purchase such as a down payment for a home. Sometimes being unable to access funds until the time is right can bring peace of mind.
Option to hedge bets on present and future rates: To avoid locking too much money into a long-term CD, one common strategy is to diversify an investment across multiple CDs over time using a CD ladder. Open a few CDs with staggered terms such as three months up to one year, or longer; as each CD matures, reinvest funds in, say, a new one-year CD. (Learn more about how CD ladders work.)
A note of caution: Breaking into a CD early typically costs you a penalty that can be several months to a year of interest. If you aren’t sure when you’ll need the money, it may be best to skip CDs right now.
» Want to compare? See the best CD rates this month
Both CDs and savings accounts offer protection
One of the biggest benefits of both types of account is federal deposit insurance up to $250,000 per customer at an insured bank or credit union. If a financial institution goes bankrupt, the government guarantees you’ll get your money back.
And rates will rise again
After the 2007-2008 financial crisis, CD and savings account rates dropped and remained low for years. Online banks and some credit unions were the first to step up to provide higher yields than traditional banks were offering. Their rates reached heights above 2% for savings accounts and 3% for long-term CDs. If history is any indication, recovery may be a long road, but it’ll come.
"If you freak out by watching rates, don’t watch them,” says Davis. “If watching rates gives you information to make sound decisions as part of your financial plan, then watch them.”
Whether or not you check rates, keep in mind: Rates play an important role in boosting savings, but they’re not the only way that savings accounts and CDs help you. If you have money socked away in an account, you’ll be ready to benefit once rates do rise again.
FAQs
The short answer to this question is yes, high-yield savings accounts are still worth opening today. But that answer could change in the months to come. That being said, high-yield savings accounts are generally still worth opening for all of the following reasons.
Are savings CDs worth it? ›
If you're looking for a safe way to earn interest on your savings, a certificate of deposit, or CD, is worth considering. CDs tend to offer higher interest rates than savings accounts. And today's best CD rates are far higher than the national averages. CDs may not always be worth it though.
What does Dave Ramsey say about CDs? ›
Ramsey has referred to certificates of deposit as "nothing more than glorified savings accounts with slightly higher interest rates." Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money.
Are CDs still worth buying? ›
CDs are a safe investment that can net you a higher return than most savings and money market accounts. Since rates have increased over the past year, they're more appealing to some savers. But with some banks already dropping rates, it's best to lock in a rate soon.
Can you lose money in a high-yield savings account? ›
Losing money in an HYSA is rare, but it can happen.
If you're looking for safe ways to grow your money and protect your savings, a high-yield savings account (HYSA) can be a great option. This type of deposit account is available through many banks and credit unions, particularly online financial institutions.
Does money in a savings account lose value? ›
If a high-yield savings account nets a 1% return and inflation averages close to 3%, you're not keeping up with the cost of living. In the long run, your cash loses its value and purchasing power.
Why is CD not a good financial investment? ›
Banks and credit unions can penalize savers who withdraw CD funds before maturity. CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs.
Are CDs worth it in 2024? ›
CD Investing Pros and Cons in 2024
CDs can be a smart financial move at times, but not so great at others. In the past, other investments earned higher rates than even the best CDs could earn. But, in today's high-interest-rate environment, CDs might be a great option.
Are bank CDs safe right now? ›
Like other bank accounts, CDs are federally insured at financial institutions that are members of a federal deposit insurance agency. If a member bank or credit union fails, you're guaranteed to receive your money back, up to $250,000, by the full faith and credit of the U.S. government.
What does Suze Orman say about CDs? ›
But not everyone needs a CD, Orman and other pros say
“As great as the certificate offers are today, I don't want you putting all your emergency savings into a certificate. That's because if you need the money during the year, you will pay a penalty for making an early withdrawal,” says Orman.
“It can be advantageous for wealthy clients to buy CDs in certain scenarios, like inside an IRA. Since IRAs are tax-favored accounts, it can defer taxes on the CD until a client takes distributions, or generate tax free income in the case of a qualified distribution from a Roth IRA,” says Piershale.
Are money CDs safe if the market crashes? ›
Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.
Why are CDs no longer popular? ›
Having been hit by the rise of filesharing and MP3 players in the early 2000s, CD sales nearly halved between 2000 and 2007, which is when smartphones and the first music streaming services emerged to put the final nail in the compact disc's little round coffin.
What is the biggest negative of putting your money in a CD? ›
Less flexibility
With a savings account, the money is easily accessible in case of a financial emergency or a change in spending priorities. With CDs, you typically can't withdraw the money whenever you want—at least not without paying a penalty.
What is replacing CDs? ›
Although CDs have primarily been replaced by all-you-can-consume music streaming services, something interesting happened in 2021: CD sales rose for the first time in almost two decades, driving over $580 million in revenue for the music industry. While that pales in comparison to the $12.3 billion.
Is there a downside to having a savings account? ›
Savings account benefits include safety for your savings, interest earnings and easy access to your money. However, savings accounts may have drawbacks, such as variable interest rates, minimum balance requirements and fees.
Should I keep putting money in my savings account? ›
A good rule of thumb you could apply when deciding how much to keep in savings is to aim for one to two months' worth of expenses. So again, if you make $5,000 a month then you'd want to keep $5,000 to $10,000 in checking. Having that amount in checking at all times means you have a cash cushion in place.
Is it worth it to save money in a savings account? ›
Everybody should do their best to build up an emergency savings fund. The general rule is to have at least three months' worth of living expenses saved up in an instant access savings account. This should include rent, food, school fees and any other essential outgoings.
Are savings accounts safe right now? ›
Savings accounts are a safe place to keep your money because all deposits made by consumers are guaranteed by the FDIC for bank accounts or the NCUA for credit union accounts. Certificates of deposit (CDs) issued by banks and credit unions also carry deposit insurance.
