Savings Account or a CD: Which works for You?

When it comes to saving money, individuals have various goals and preferences. Financial institutions such as Credit Union of Colorado provide a range of options to cater to these diverse needs. While most people are familiar with savings accounts, certificate of deposit (CD) accounts offer an alternative way to save. This article aims to shed light on the dissimilarities between CD and savings accounts, highlighting their unique benefits.

couple reviewing finances online

What is a CD Account?

A certificate of deposit (CD) account serves as an alternative to a traditional savings account. Unlike savings accounts, CD accounts often require a higher balance (a minimum of $500 at CUofCO), and the deposited funds remain locked for a predetermined period, known as the "term" of the account. Interest starts accruing after an initial deposit, and the account holder can select a term length from the options provided by their bank.

Benefits of a CD Account:

  • Potentially higher interest rates: CD accounts may offer better interest rates compared to savings accounts, particularly for longer-term CDs. Fixed-rate CDs ensure the interest rate remains consistent throughout the term.
  • Long-term savings goals: If you have a larger or longer-term financial objective, such as saving for a down payment on a home or retirement, a CD account can help you stay committed to your savings plan.
  • Locking in an interest rate: With a fixed-rate CD, you have the advantage of securing a specific interest rate, protecting your savings from potential fluctuations in the market.
  • Larger opening balance: CD accounts often require a higher initial deposit, which can be beneficial if you have a substantial sum to invest.  At CUofCO, you can open a CD for as little as $500.

What is a Savings Account?

A savings account is a deposit account designed for individuals to set money aside for their savings goals. Unlike checking accounts used for daily expenses, savings accounts are primarily intended for accumulating funds. While withdrawals from savings accounts are allowed, there may be certain limitations. Additionally, savings accounts generally provide variable interest rates.

Benefits of a Savings Account:

  • Accessibility: Savings accounts offer more flexibility in accessing your funds compared to CD accounts. This makes them ideal for emergency funds or savings goals where you require quick access to your money.
  • Shorter-term goals: If you are saving for a smaller or relatively short-term objective, such as a vacation or a new gadget, a savings account allows you to accumulate funds while maintaining liquidity.
  • Regular deposits: Savings accounts are suitable for individuals who want to regularly contribute to their savings without worrying about penalties for early withdrawals or fixed-term commitments.
  • Variable interest rates: While savings account interest rates may vary, they can also benefit from potential rate increases, allowing your savings to grow alongside market conditions.
  • Smaller opening balance: Savings accounts typically have lower minimum balance requirements, making them more accessible for individuals with limited funds to start saving.

To determine whether a CD or savings account suits your needs, consider the following factors:

When to Consider a Savings Account:

  • You need the money to be easily accessible, such as for emergency situations.
  • Your savings goal is relatively small or short-term.
  • Your priority is setting money aside rather than seeking substantial growth.
  • Variable interest rates are acceptable to you.
  • You have a smaller opening balance available.

When to Consider a CD Account:

  • You can afford to let the money sit untouched for a specific period.
  • You are saving for a larger or longer-term goal, like a down payment on a home or retirement.
  • You aim to grow your money gradually.
  • Locking in your interest rate with a fixed-rate option is preferable.
  • You have a larger opening balance at your disposal.


When it comes to saving money, there is no one-size-fits-all approach. The choice between a CD or savings account depends on your specific needs and financial goals. If you require easy access to your funds, have short-term objectives, or prefer variable interest rates, a savings account might be the right fit for you. On the other hand, if you can afford to let your money sit for a designated period, have long-term goals, or prefer to lock in an interest rate, a CD account could be more suitable. Keep in mind that it's not necessarily a choice between one or the other—you can utilize both types of accounts to diversify your savings strategy. Ultimately, the "right" choice is the one that aligns with your financial objectives and provides the necessary balance of accessibility and growth potential.