CDs and High Yield Savings Accounts — Where Can You Earn 5.5% After the Federal Reserve Hikes? “This Is Time Sensitive.”

Financial Planners

Leslie Albrecht

It’s time to lock in higher interest rates on cash savings if you can, financial advisers say

Hello. Welcome to Financial Face-off. This is a MarketWatch column to help you consider your financial decisions. Our columnists give the verdict. Let us know in the comments if you think she’s right, and if you have suggestions for her future Financial Face-off columns, email our columnist at


Rising interest rates have made it more expensive to maintain a credit card balance or take out a car loan, but conversely, there are opportunities to earn more interest on your cash savings. To do this, open a high-yield savings account or purchase a Certificate of Deposit (CD). (This column will focus on those two options. Learn more about other cash investments here.)

A high yield savings account is a bank account that offers a higher interest rate than a traditional savings account. According to, savers can now earn more than 5% annual yield (APY) on select high-yield accounts. According to Ken Tumin, a senior industry analyst at LendingTree and he’s the founder of, online-only banks offer the best rates for this kind of account because they don’t have the expense of maintaining a physical branch. often provide.

A CD is an account where you deposit money and store it for a certain period of time (6 months, 1 year, 5 years, etc.). At the end of that period, you can withdraw the money and the interest it has earned. Some CDs are now making as much as 5.5% of his profit, according to

So if you’re looking for a place to store your cash, which is better, a high-yield savings account or a CD?

why it matters

Grant Meyer, Certified Financial Planner and Founder of GTS Financial in Bloomington, Minnesota, said:

That’s because the Federal Reserve launched a series of rate hikes last year, raising the benchmark rate to a range of 5% to 5.25% until May 3rd. When interest rates first start rising in 2022, savers started looking for short-term ways to stash their cash. They wanted to avoid being locked into a particular rate while rates were rising rapidly.

“Now it’s the exact opposite,” Meyer said. “You’d want to consider locking long term because you’re not going to see a substantial uptick in real terms. Interest rates are as good as they get. You can lock them, but definitely It’s worth it and this is time sensitive.This is 6 months old and if you postpone it you may not get this rate again.

Indeed, the Fed signaled on May 3 that it could raise rates for the foreseeable future. The Dow Jones Industrial Average, the Nasdaq Composite and the S&P 500 rose on Friday on the back of strong jobs data, but one economist said the data would “drain the market’s enthusiasm for betting on a near-term rate cut.” Stated.

CDs, on average, offer higher interest rates than high-yield savings accounts, but they’re not for everyone. Cash is essentially inaccessible until the CD period expires. If you need to withdraw your money before then, you will be penalized. High-yield savings accounts usually allow you to withdraw money at any time, but the account usually limits the number of withdrawals you can make in a month.


High yield savings account.

my reason

They may not grow your cash as much as a CD, but Americans need all the help they can get when it comes to building their savings, so they’re choosing high-yield savings accounts as winners. Planners generally recommend having a cash emergency fund that can cover three to six months of expenses. However, according to the Fed’s latest report on Americans’ financial well-being, 32% of households pay for $400 in cash or equivalent for unexpected expenses such as car repairs and emergency medical bills. says it can’t.

For those just starting to save cash, a high-yield savings account is a quick and easy way to get started. Many accounts have no fees and minimum balances, so you can start almost from scratch. It’s also highly liquid, so cash stays with you quickly, but it can take days to transfer from your high-yielding savings account to your checking account.

Note, however, that the term “high-yield savings account” does not have a formal definition. Banks can put that label on any account. It’s up to you to check the rates your bank offers and compare them with other banks and credit unions (look into your local bank and smaller banks as well, they may have better rates than the big national banks because).

Keep in mind that interest rates on high-yield savings accounts fluctuate. This means that you can change it at any time. People deciding between a 1-year CD with a 5% interest rate and a high yield savings account with a 5% interest rate may be tempted to use a high yield savings account so that they can get their money easily. , said Tumin. “The only problem with that is that the environment could change in the coming months to a lower interest rate environment, and instead of 5% by the end of the year, that savings account could pay, say, 2% or 3%. You can still get 5% if you have the CD,” he said.

Is my verdict the best for you?

On the other hand, CD rates appear to have peaked, so this is your chance to secure a higher than usual yield. Once you have set up your cash emergency fund, CDs are one way to increase your cash yield. Some even build CD “ladders” to protect their cash.

There is one caveat about CDs at this time. Traditionally, the CD with the longest duration (such as a 5-year CD) costs the most. However, short-term CDs currently offer higher interest rates than long-term CDs, a phenomenon known as an “inverted yield curve.” This could indicate that a related recession is on hold here, as the Fed is likely to cut rates in the event of a recession. This is another reason why you should act quickly to take advantage of higher rates.

“Ultimately, it’s important to understand when you’ll need the money and scan the different types of commodities and their associated interest rate landscapes before committing to any of them. Your hammock.” .

“CDs and savings accounts are great for securing short-term money needs, but have historically offered interest rates well below average long-term inflation. So security is your goal.” If so, they might be great, but if growth is your goal, you might want to look at a car that not only puts your money at risk a bit more, but gives you more return in exchange for that increase. It’s dangerous.”

Tell us in the comments which option you should win in this financial faceoff. If you have ideas for future Financial Faceoff columns, please email us at

Also see: ‘These High Yields Won’t Last Forever’: The Fed’s rate hike may be the last for now. Is it time to say goodbye to CDs and 5% of your savings?

– Leslie Albrecht

This content was produced by MarketWatch operated by Dow Jones & Co. MarketWatch is published independently of The Dow Jones Newswires and The Wall Street Journal.


(Closed) Dow Jones Newswire

05-06-23 1817ET

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