Saving for certain things just makes sense: rainy day funds, vacations, a wedding, or other financial goals are all good things to save money for. A key question, however, is where are you going to put all of that money you’re setting aside?
Putting your money into a traditional savings account and certificate of deposit may immediately come to mind when you think savings. Traditional savings accounts can be convenient because you can add and withdraw money when you need to.
Traditional CDs tend to have better interest rates than savings accounts (a good thing) but the commitment to leaving your money locked away for period of time may feel too restrictive, depending on your situation.
There are two other savings options – a no-penalty CD and an online savings account – that could be worth considering.
To see how each of these stacks up, read on.
CDs have long been a popular way to save money because you generally get a fixed rate of return for a predetermined period of time. The trade-off is flexibility. If you need to withdraw money early, expect to pay a penalty.
No-penalty CDs don’t have early withdrawal penalties. (Hence the name.) Depending on the bank, you can typically withdraw the money beginning seven days after a no-penalty CD is funded.
In addition to providing access to your money, the no-penalty CD has an additional benefit: you can withdraw your money if interest rates go up and put it into another CD with a higher interest rate, without having to wait for the term to end.
An online savings account from an online bank is like a traditional savings account; you deposit money in an account and earn interest on it. The big difference is in the interest rates. With fewer overhead costs, online banks can typically offer higher interest rates than brick-and-mortar banks.
Both provide flexibility and a return on your savings, but there are clear differences that will appeal to different needs.
No-Penalty CD
Online Savings Account
No-Penalty CD
Online Savings Account
Interest rates
You lock in the interest rate for the full-term. That means that even if CD interest rates decline, you wouldn't earn less of a return.
Interest rates are variable; Your account's interst rate could go up or down.
Withdrawals
You can typically withdraw money as soon as 7 days after funding although rules may vary at different banks.
You can take out as little or as much as you want from a savings account. Withdrawals are limited to six per month, depending on the type of withdrawal you make.
Minimum Deposit
The minimum deposit for no-penalty CDs varies from bank to bank.
Typically a low or no minimum deposit is recquired to open an account.
No-Penalty CD
Online Savings Account
No-Penalty CD
Online Savings Account
Interest rates
You lock in the interest rate for the full-term. That means that even if CD interest rates decline, you wouldn't earn less of a return.
Interest rates are variable; Your account's interest rate could go up or down.
Withdrawals
You can typically withdraw money as soon as 7 days after funding although rules may vary at different banks.
You can take out as little or as much as you want from a savings account. Withdrawals are limited to six per month, depending on the type of withdrawal you make.
Minimum Deposit
The minimum deposit for no-penalty CDs varies from bank to bank.
Typically a low or no minimum deposit is required to open an account.
This article is for informational purposes only and is not a substitute for individualized professional advice. Individuals should consult their own tax advisor for matters specific to their own taxes and nothing communicated to you herein should be considered tax advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA does not provide any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.