Online Savings Accounts Versus CDs: Which One Should You Choose?

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If you’re looking to save up some funds, there are a few places you can park your cash. You could set money aside in an online savings account. Certificates of deposit (CDs) are another option – and there are several you could choose from like high-yield CDs, no-penalty CDs or rate-bump CDs.

So which one do you go with? You’ll want to think about your timeline (when you need to access to your money) and your goals. Are you building an emergency fund that you might need to dip into at a moment’s notice or could your money sit untouched for a year…or even five? The answer can help you pick an account. And remember: Different financial goals can be in different accounts.

We’ll review the basics of a few savings vehicles you could keep your funds in including an online savings account, high-yield CD, no-penalty CD and rate-bump CD.

Online Savings Account

An online savings account from an online bank is similar to a traditional savings account: You put money in, and it earns interest. Because they don’t usually have brick-and-mortar locations and fewer overhead costs, these banks can typically offer a higher interest rate than traditional savings accounts. Just remember: The APY (Annual Percentage Yield) for savings accounts is variable, meaning it can go up or down.

PS: When you’re scoping out rates for online savings accounts (and other savings vehicles like CDs), take a look at the APY since the interest rate alone won’t give you the full picture. APY takes into account not only interest but also the rate at which it compounds, whether that’s daily, monthly, quarterly or annually. The frequency can help you figure out how much money you could potentially earn.

Like traditional savings accounts, some online banks may limit withdrawals to six per month. Since you’re able to access your money relatively easily and take out as little or as much as you want, online savings accounts could be a good place to tuck away funds for everyday expenses or funds that you’ll need soon or quickly, like an emergency fund or a car down payment.

High-Yield CD

Certificates of deposit are another place you can stash your money. How they work: You keep a lump sum in a CD for a designated amount of time, called a term, and earn a fixed rate during that time. That means even if rates go down, you won’t earn less of a return.

CDs tend to have higher interest rates than savings accounts. And high-yield CDs tend to have some of the highest rates compared to other CDs on the market. Potentially earning more money on your money sounds great!

The tradeoff with CDs? Your funds will be locked in for the full term, which can be a few months or a few years. Early withdrawals could result in penalty fees, which might wipe out the interest you’ve earned and even eat into the balance.

Unlike an online savings account, there’s also usually a minimum balance requirement.

Still, CDs could be good for putting away money that you won’t need access to during the term, whether that’s a few months or a few years. Or you could line up a savings goal with a CD’s term. For example, if you want to buy a car in 12 months, a 12-month CD could help you earn a little more interest during that time.


No-Penalty CD

A traditional CD may feel like a lot of commitment. It could be years before you can see your money. A no-penalty CD could offer more flexibility.

With a no-penalty CD you could withdraw funds before the term is over. In some cases that could be as soon as seven days after funding the account. It’s a good idea to double check with the bank to see what their rules are.

Another perk: If rates go up, you could take your money out and put it in a CD with a higher rate. (Similar to a traditional CD, the rate for no-penalty CDs stays the same throughout the term.)

Given the flexibility, no-penalty CDs could be good for money that you want to keep accessible, like for an emergency fund. Or you could stick out the term and keep growing your money for future plans like a home renovation or wedding.

Rate-Bump CD 

A traditional CD typically comes with a fixed rate. But with a rate-bump CD you – surprise – have the option to hike up your rate during the term.

Some rate-bump CDs will only allow one rate increase during the term, while others let you raise it more than once. And there may be rules about how much you can raise your rate. You’ll want to read the fine print as the details can vary from one financial institution to the next.

Rate-bump CDs can also be a good option to consider if interest is slated to go up. Of course, that can be tough to predict, even if you stay on top of financial news.

At the end of the day, there are a lot of places you can put your money. And it usually doesn’t have to be in one account. In fact, it could be a good idea to split up your funds, depending on when you need the money and what you’re using it for. Before you commit, take some time to research your options – and their rates, terms and fees – to see which account(s) could work for you.

Want a side-by-side comparison? We’ve lined up all the savings vehicles in this story.

Fixed, stays the same throughout the CD’s term.

Online Savings Account

High-Yield CD

No-Penality CD

Rate-Bump CD


Variable, can go up or down.

Fixed, stays the same throughout the CD’s term.

Fixed, stays the same throughout the CD’s term.

Can go up during the CD’s terms. How much and how often depends on the financial institution.


You can take out as little or as much as you want. Withdrawals are typically limited to six per month; some banks may not have a limit.

Early withdrawal penalty if you take out funds before the term ends.

You can typically withdraw money as soon as 7 days after funding although rules may vary at different banks.

Early withdrawal penalty if you take out funds before the term ends.

Minimum Balance

Typically, there's either a low or no minimum deposit required to open a savings account online.

The minimum deposit varies from bank to bank.

The minimum deposit varies from bank to bank.

The minimum deposit varies from bank to bank.

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.