Rates on savings accounts and CDs have been extraordinary recently. In fact, even though rates are starting to drop, there are still some very attractive offers. You can find the best high-yield savings accounts and CDs with APYs of 4% or even 5%.

However, the Fed’s rate cuts mean that economic trends are changing and the savers’ party is coming to an end. It’s time to decide if there are any accounts you want to request for one last dance.

This means understanding the differences between CDs and savings accounts so you can decide which one is best for you.

CDs or savings accounts: it’s all about flexibility

The biggest difference between CDs and savings accounts is flexibility, in terms of pricing and accessibility.

Our picks for the best high-yield savings accounts of 2024

Capital One 360 ​​Performance Savings APY 4.00% Pricing information Check the Capital One website for the most up-to-date pricing. The Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates are subject to change at any time before or after account opening. Member of the FDIC.	APY 4.00% Pricing information Check the Capital One website for the most up-to-date pricing. The Advertised Annual Percentage Yield (APY) is variable and accurate as of October 23, 2024. Rates are subject to change at any time before or after account opening.	Min. earn $0
American Express® High Yield Savings APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 10, 2024 Member of the FDIC.	APY 4.00% Pricing information Annual percentage yield of 4.00% as of November 10, 2024	Min. earn $0
CIT Platinum Savings APY 4.70% APY on balances of $5,000 or more Pricing information 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY Min. earn $100 to open an account, $5,000 for maximum APY Member of the FDIC.	APY 4.70% APY on balances of $5,000 or more Pricing information 4.70% APY on balances of $5,000 or more; otherwise, 0.25% APY	Min. earn $100 to open an account, $5,000 for maximum APY

The money you put in a savings account is easily accessible, but savings APYs vary. You don’t lock up your money, but you don’t lock out either In neither does a high APY. It is easy to make withdrawals, but the rate can and will change.

On the other hand, when you put money in a CD, you agree to leave it there until the CD matures. (With most CDs, you’ll pay a penalty for withdrawing early.) At the same time, the rate is fixed for the life of the CD. It is difficult to withdraw money, but the CD rate is fixed and will not change.

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How High Interest Rates Upended Common Wisdom

It used to be said that CD rates were higher than savings account rates. You’ll also get a higher APY if you commit to longer CD terms. Banks essentially rewarded customers for tying up their money – and the longer, the better.

But high interest rates have changed everything. Right now, high-yield savings accounts pay the highest APYs. Plus, you can get better rates on shorter CDs than longer CDs.

Indeed, the Fed should continue to reduce its rates, albeit gradually. As rates fall, banks will reduce their savings APYs. But they can’t change the prices promised on existing CDs.

Banks don’t hesitate to pay high APYs on variable rate savings accounts. But they don’t want to find themselves having to pay an APY of, say, 5% on a 5-year CD in a few years, when rates have fallen significantly.

Which is the best? CDs or savings accounts?

So, are you opting for a savings account with the highest APY possible today? Or get the highest CD rate possible before rates drop even further? There’s certainly an argument for keeping CD rates high. It’s like extending your last drink at the bar to extend the party a little.

Let’s say you invest $5,000 in a 5-year CD with an APY of 3.9% today. You could earn more than $1,000 in interest over the life of the CD. On the other hand, even if you can currently earn more than 5% in a top-rated savings account, you won’t get that extra 1.1% interest for the full five years. There is a good chance that the Fed will cut rates by up to 2 percentage points over the next two years. As such, you will almost certainly earn more interest on the CD.

While I’m always a fan of maximizing interest payments, there are other factors to consider. More importantly, when might you need access to the money? There’s no point in making a few hundred extra dollars if you can’t get your money out when you need it.

Don’t get too distracted by falling rates. In general:

• Savings accounts are best when: You’re looking for a place to park money you might need to access quickly, like your emergency savings.
• CDs are best when: You have money that you are saving for a particular short- or medium-term goal, such as a vacation or a deposit on a house.
• Investment accounts are best when: You have money with which you are willing to take a little more risk in exchange for higher potential rewards. Ideally, we’re talking about cash that you won’t need for five to ten years or more.

To remember

When it comes to financial products, there is rarely one that is always better. Certain products will be better suited to different situations and projects. Right now, CDs have a “last chance” feeling. It is true that these extraordinarily high rates will not last forever. But it’s a bit like shopping during sales. It’s only a good deal if it’s something you’ll use.