As you build your savings and refine your financial goals, you may ask yourself when to place your funds into certificates of deposit (CDs) rather than into a savings account. Looking at some of the fundamental differences between these two savings products can help you determine the best course of action for your needs.
The Basic Difference
CDs are time deposits. When you open a CD, you agree that you will not withdraw the funds until the maturity date, which varies from a few months to several years after you open the account, depending on the term you choose. You can close a CD before the term ends, but you typically will pay an early withdrawal penalty for doing so. CD rates will vary by financial institution, but are usually higher than the rate you'll receive when you place the same amount into a savings account for the same amount of time.
Although savings account rates usually are variable and may be lower than CD rates, you can generally withdraw the money in a savings account at any time (subject to the terms of the account agreement and withdrawal limitations).
The most obvious advantage of CDs is that their rates are usually higher than savings account rates. The Ally Bank High Yield CD is a great place to start when comparing CDs, but there's more to consider than just the current rates. Here are a couple more things to look for:
Minimum Deposit Requirements
Ally Bank CDs have no minimum opening deposit requirement. Many banks do have such minimums, which can be more than $1,000, and in the case of “jumbo” CDs, $100,000.
Frequency of Compounding Interest
The more frequently a financial institution compounds interest, the faster your balance grows. Some banks compound interest on a monthly, quarterly or even annual basis. At Ally Bank, we compound your interest daily. So be sure to check the annual percentage yield (or APY) when comparing rates—it reflects both the interest rate and the compounding interest.
The Case for Savings
Even with great CD rates, interest isn't everything. If you will need access to your funds in the near future, a CD may not be best option. Our Online Savings Account offers competitive rates and easy access to your funds, all with no monthly maintenance fees.
Explore Your Options
If you want to combine the benefits of CDs with the flexibility of a traditional savings account, take a look at the Ally Bank No Penalty Certificate of Deposit. This unique CD lets you withdraw all of your money, including interest earned, without any penalties, any time after the first six days following the date you fund your account.
Your deposits at U.S. banks in CDs and savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC) up to the maximum allowed by law.
Find out more about your savings options by visiting AllyBank.com today or call live, 24/7 customer care at 877-247-ALLY (2559).
Ally Bank, Member FDIC