There are many ways to make your money grow. Two of the best ways are to put money in a savings account or to use certificates of deposit (more commonly referred to as CDs). You can use either of these methods to store your money while it collects interest, building up to higher amounts for you. However, there are significant differences between savings accounts and CDs which may make one much more effective in your situation than the other.
Pros of savings accounts
Money in a savings account is yours to access at any time. If an emergency occurs, you can pull your money out of the savings account immediately to cover whatever you may need.
Savings accounts allow people to start as small as they want to due to the fact that they don’t have any minimum deposits. One thing that can be good or bad is that interest rates on savings account can change over time. This may be good for you if the interest rates rise, but isn’t good if they fall.
Pros of certificates of deposit
CDs are for people willing to commit to a longer-term investment. When you get a CD, you are committing to having your money in it for a set period of time, anywhere from three months to five years, usually.
While locking your money in a certificate of deposit means you can’t access it early (not without paying serious fees), you will get a significantly higher interest rate on it than on money in a savings account. The interest rate on CDs is set as well, so it won’t fluctuate like a savings account.
Which is better when?
Generally speaking, CDs are better for people with a lot of money to invest. People who can set the money aside confident they won’t need it until the CD has completely paid out.
Savings accounts are good for people whose financial status isn’t quite as stable but want to invest for their future. The flexibility offered by a savings account means they can save or spend as much as they need to.