What are the Benefits to Choosing a CD over a Savings Account?

What are the Benefits to Choosing a CD over a Savings Account

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As with all bank products, it's best not to put all of your money into just one type of product or service. CDs and Savings accounts are often lumped together because of their similarities. However, if you know what to look for, a CD can offer several advantages over a traditional savings account. Which one you choose depends on your unique savings goals, as there is no "one size fits all" answer when it comes to your finances.

While savings accounts do give you instant access to your funds, you may not earn as much on your money as you would with a CD. Withdrawing your CD funds before the maturity date could set you back with a penalty. However, by spreading your money across multiple CDs with varying amounts and maturity rates, you're more likely to have access to your money when you need it (while still earning some of the best CD rates).

Both CDs and savings accounts let you reap the benefits of compounded interest. For instance, at Aurora Bank and some other banks, the interest you earn is compounded daily and added to your account every month. You can also decide to have your CD automatically roll over at its maturity date earning you more income toward your savings goals. The difference is that CDs have the higher interest rates, since you're essentially agreeing to save your money for a set time period, while savings accounts give you lower interest rates, but quicker access to your funds on-demand, should you need them.

It's always a good idea to have money in a savings account in case of an emergency, but if you have a specific goal in mind or have some extra money and you want it to work harder for you by earning more, a certificate of deposit is a solid, reliable banking product you can count on. Because CDs are backed by the stability and safety of the FDIC (Federal Deposit Insurance Corporation) for member Banks, you're investment is safe up to the maximum amount approved by the FDIC.

That's because CDs work on the principle of compound interest. Interest is compounded daily and paid back to you every month. With a CD, you agree not to withdraw your money during a certain period of time. This means you can save up to the maximum allowed by the FDIC without worrying that it will lose its value tomorrow.

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