Difference Between Savings Accounts, CDs and Investment Accounts

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These days if you’re looking for a place to stash your extra funds, you have a lot of options. In this article we’ll go over three financial vehicles in which you could put your money to work: savings accounts, CDs and investment accounts.

So how do you decide which one to choose? Here are two considerations: your timeline (when you might need your money) and your goals.

In some cases, like with investment accounts, considering your risk tolerance can be helpful, too.

Ahead, we’ll go over the basics of savings accounts, CDs and investments accounts and when you might consider each one.

What’s a savings account and when does it make sense to use one?

As you may already know, a savings account is a deposit account that earns interest and is held at a bank or other financial institution.

Savings accounts are typically considered a safe and reliable option. The tradeoff, however, is you’re generally not going to see high returns.


The two main things to consider when thinking about where to put your money: how soon you’ll need that money and what your goal with it is.


That’s because the interest rate on savings accounts is typically pretty modest. Of the three financial vehicles we’re discussing, savings accounts usually offer the lowest interest rate.

Now that’s not to say traditional savings accounts aren’t worth it. When you’re thinking about where to put your money (whether that’s a savings account or elsewhere), the two main things to consider: How soon you’ll need that money and what your goal with it is.

Typically, it’s easier to withdraw money from a savings account than from a CD or investment account. So if you know you’ll need your money soon, keeping it in a savings account may make sense. (Be aware that some banks may have a monthly withdrawal limit, however.)

Note: In this article, we’re only touching on traditional savings accounts. But there are also high-yield savings accounts designed to provide higher yields. You can learn more about high-yield savings accounts here

What’s a CD and when does it make sense to use one? 

Like a savings account, you can find a CD (Certificate of Deposit) at banks and other financial institutions. CDs may offer a potentially higher interest rate. But you may have to keep a lump-sum deposit in the CD for a designated amount of time.

All CDs come with a term, which is the length of time you agree to lock up your money in exchange for a specified interest rate. The terms for CDs differ – they can be as short as three to six months or longer, like from 12-18 months. Typically, the longer the term, the higher the interest rate you can earn.

Reaching your goal starts with saving for it.

Unlike traditional savings accounts where you can make withdrawals relatively easily, with CDs, you usually can’t withdraw the funds until the term is up. If you do, you might pay a penalty. 

Because of their features, CDs can make sense if you have specific financial goals in mind that line up with a CD term length. For example, if you’re saving up for a car in the next 12 months, a 12-month CD could help you earn a little extra interest during that time.

Good to know: Not all CDs are strict with withdrawals. No-Penalty CDs let you take out money whenever you want without incurring a penalty fee.

What’s an investment account and when does it make sense to use one?

"Investment account" is a pretty broad term – it can include traditional brokerage accounts which allow you to invest in stocksbonds, ETFs or mutual funds. Retirement accounts, like IRAs or 401(k)s, are also considered investment accounts. 

Your contributions, gains and withdrawals might get taxed differently depending on which investment account you have.

Which one (or ones) you pick will likely depend on your timeline and goals. For example, you might go with an IRA for retirement, or a mutual fund or ETF if you’re looking for diversification.

With investment accounts, you’ll also want to think about your risk tolerance.

While investing offers an opportunity for you to potentially earn a better return than what you could get through your deposit accounts, investing involves risk.

The potential to earn a higher return comes with more risk and volatility – so you might see your balance fluctuate day to day, and you could lose your money. 

Good to know: A large part of investing is about figuring out how to properly balance risk and reward based on your willingness to take on risk, your capacity or ability to afford losses and the time horizon over which you are comfortable having your assets invested.

A recap

Here’s a quick comparison table to help you decide which account might make sense for you based on timeline and example goals.

Savings Account

CD (Certificate of Deposit)

Investment Account


Short-term: immediate needs - less than 3 years

Intermediate: 3-10 years (can be less depending on the rate and term you desire) 

Long-term: 10 years and beyond

Types of Goals

Emergency fund, buying a car

Buying a house, home renovations

Retirement, saving for kids’ college fund

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