We all know we should save money, but we’re not often taught how. There are many different types of savings accounts to serve all different types of financial situations. 

Today, we’re going to focus on certificate of deposit (CD) accounts and help you figure out if they’re the right choice for you. 

You’ll learn all about their rates, rules, and who they’re best for.

What is a CD Account?

A CD account is a less flexible savings account that usually comes with a higher interest rate at the cost of locking funds for a period of one to five years. 

The longer you agree to leave your money in the account, the more interest you earn. If you do withdraw money, you pay a penalty.

Interest Rates

This may seem like a lot, but here are a few terms you need to understand when it comes to interest rates. Interest is payback you earn on your money when you keep it in an account. 

Most savings accounts have an interest rate that changes over time. This means the amount you earn on your money may go up or down while you have the money in the account. 

When it comes to CD accounts, most of the time they offer a fixed rate which stays the same the entire time your money is in the account, until the term ends.

The most important thing to understand about interest rates is the higher they are, the more money you make over time.

Access to your Money

This is where CD accounts can get complicated. Here are a few more important terms to know:

But what happens with the term ends and the CD matures? That depends on the agreement with your bank. 

When your account matures, you will usually need to withdraw your money or transfer it into a different account. If you don’t after a certain amount of time, your bank will usually roll over your money into a new CD with the same term. But since the CD account is technically a new one, the interest rate could be different than the original one.

Set reminders for your CD maturity date, so you don’t accidentally get locked into a rollover.

Is a CD account Right for You?

So is a CD account right for you? It depends. This type of account can help you save money for specific events, or even just avoid the temptation to spend money rather than saving it. 

CD accounts are not a good choice for emergency savings. 

The first step is having all the information you need to make a good decision.

A savings account is like a formal piggy bank. When your money is inside, it’s harder to reach—which means you’ll spend less. 

So why ditch the piggy?

Interest. Interest is the amount of money you earn back each year when your money sits in an account. 

The average national interest rate is 0.06%, but many saving accounts offer much more than that. Savings accounts pay interest in exchange for limiting your withdrawals.

This guide will help you explain the differences between the major savings account types and help you decide which one works best for you. 

The Types

Standard Savings Account

These are the most common types of savings accounts and most banks offer them. If you’ve ever opened a savings account, it was probably one of these. 

Typically, these earn less interest than specialized savings accounts, but they’re the most straightforward to open. They’re great for anyone getting started. Some banks charge a monthly fee or penalty for low balances, so make sure you read your contract. 

Money Market Account

Money market accounts make it easy to get your money in and out and sometimes earn even more interest than a standard savings account. 

Unlike most other savings accounts, money market accounts also offer debit cards and checks linked to your account.

The only drawbacks to money market savings accounts are the usual minimum balance requirements and the related fees.

Certificate of Deposit Account

A certificate of deposit (CD) account requires you to park your money in an account for an agreed-upon period, known as a term, which can range from three months to five years.

If you take out money before your term is up, you’ll pay steep penalties. 

While your money is locked up, it can make you up to five times the average interest compared to standard savings accounts. The longer you leave your money, the better your interest. 

If you’re comfortable not touching your money, this can be a great savings option.

High-Interest Savings Account

A high-interest saving account or a high-yield saving account, is a standard savings account that earns much higher interest. 

Most online banks offer this type of account and only require a low minimum balance to start, usually under $100. 

High-interest accounts are great if you want the most bang for your buck but don’t have a lot of money to put down. 

Student Savings Account

These are for one type of person—students. 

They’re similar to other savings accounts but usually are more flexible and often provide tools to help students manage money more responsibly, like automatic deposits. 

A student saving account is perfect for someone in high school or college who wants to start saving young. 

Which Savings Account Is Right for You?

Choosing a savings account can seem tricky, but it doesn’t have to be.

Now that you know what each account type does you only need to know how easily you need to access your money and what the interest rates are. That’s it.