CD (Certificate of Deposit) vs. Savings Account: Which Earns More in 2025?
If you want your savings to grow without market risk, two of the safest options in the USA are Certificates of Deposit (CDs) and savings accounts. Both products are FDIC-insured and designed to hold cash securely, but they differ significantly in interest rates, access to funds, and flexibility. This guide compares CDs vs savings accounts in 2025 to help you decide which earns more and fits your financial goals.
Key Takeaways
- CDs typically offer higher interest rates than savings accounts
- Savings accounts provide greater liquidity and flexibility
- Earnings depend on your time horizon and rate environment
- Early withdrawal penalties lower CD returns if redeemed before maturity
- Short-term and no-penalty CDs can offer a balance of yield and access
What Is a CD (Certificate of Deposit)?
A Certificate of Deposit (CD) is a time-bound savings product offered by banks and credit unions. You deposit money for a fixed period—commonly 3 months to 5 years—in exchange for a guaranteed interest rate. At the end of the term (maturity), you get back your original principal plus interest.
CDs are ideal if you don’t need access to your money during the term and want a predictable return.
What Is a Savings Account?
A savings account is a deposit account that pays interest and allows flexible access to your funds. Many U.S. banks and online financial institutions offer high-yield savings accounts with competitive Annual Percentage Yields (APYs). Unlike CDs, savings accounts do not lock in your funds and allow more frequent withdrawals, though some accounts may limit monthly transactions.
Savings accounts are best for emergency funds or savings you might need in the short term.
CD Rates vs Savings Account Rates in 2025
Interest rates change frequently. As of late 2025, the rate environment in the USA has elevated yields compared to the pre-2020 era. Below is a typical comparison based on current product offerings.
| Product | Typical APY (2025) | Liquidity |
|---|---|---|
| High-Yield Savings Account | ~4.50%–5.25% | Very high (frequent access) |
| 1-Year CD | ~5.00%–5.50% | Low (locked 1 year) |
| 2-Year CD | ~5.25%–5.75% | Low (locked 2 years) |
| 5-Year CD | ~5.50%–6.00% | Very low (locked 5 years) |
These ranges are typical for competitive online institutions; specific rates can vary.
Why CDs often earn more:
CDs generally offer a higher APY than comparable-risk savings accounts because banks reward you for locking in your funds. Longer terms often correlate with higher rates.
Why savings accounts stay competitive:
High-yield savings accounts have improved dramatically in the last few years, offering yields close to some short-term CDs while maintaining liquidity.
Liquidity and Access: Savings vs CD
Liquidity refers to how easily you can access your funds.
- Savings accounts:
- Withdraw anytime (subject to bank rules)
- No penalties but may limit certain withdrawals per month
- CDs:
- Funds locked until maturity
- Withdrawing early usually incurs penalties (loss of interest)
If you expect to use your savings within a year, savings accounts typically make more sense. If you can set aside money for a fixed period, CDs often earn more.
Risks and Penalties: CD Early Withdrawal
Early withdrawal penalties can affect returns. For example:
- 1-Year CD penalty: ~3–6 months of interest
- 2-Year CD penalty: ~6–9 months of interest
If a CD penalty wipes out interest earned, the effective return can fall below a savings account’s APY.
Some banks offer no-penalty CDs that allow early withdrawal without penalty, blending higher yield with better access.
How to Choose Between a CD and a Savings Account
Your choice should match your financial goals and time horizon.
Choose a savings account if:
- You need access to funds anytime
- You are building an emergency fund
- You prefer flexibility over maximum APY
Choose a CD if:
- You can lock away funds for a defined period
- You want the highest possible guaranteed yield
- You have predictable future cash needs
Consider splitting funds: keep your emergency fund in a high-yield savings account and ladder CDs for longer-term savings with higher rates.
Frequently Asked Questions
Are CDs safer than savings accounts?
Both are FDIC-insured up to $250,000 per depositor per bank and equally safe.
Do I lose money if I withdraw early from a CD?
You typically sacrifice some or all accrued interest, which reduces your effective return.
Can a savings account earn as much as a CD?
In 2025’s rate environment, some high-yield savings accounts compete with short-term CDs, but longer-term CDs generally pay more.
What is a CD ladder?
A CD ladder staggers multiple CDs of different terms to balance liquidity and yield.
Are online banks better for rates?
Often yes—online banks tend to offer higher APYs than traditional brick-and-mortar institutions.
Action Steps
- Decide your savings time horizon (short vs long term)
- Compare current APYs on savings accounts and CDs
- Consider partial allocation to both savings and CDs
- Factor in early withdrawal penalties
- Open FDIC-insured accounts to protect your funds
Conclusion
In 2025, both CDs and high-yield savings accounts offer attractive ways to earn interest on safe cash holdings. CDs tend to earn more if you can lock in funds, while savings accounts provide unmatched liquidity. For many savers, a blended strategy using both—especially with a CD ladder—can maximize earnings while preserving access. Prioritize your savings goals and cash needs first, then choose the product that matches your financial plan.
