HYSA vs. CD

What is the difference between a HYSA & a CD?

Let’s first define the two terms we are using

HYSA = High Yield Savings Account 

CD = Certificate of Deposit

Both of these accounts are vehicles for savings that offer unique benefits, such as higher interest rates than your regular savings. So which one is better? Let’s break it down.

A HYSA is an online savings account thats is FDIC insured in which you can only withdraw from the account 6x a month. The main advantage of a HYSA is that it offers a high & competitive interest rate. Often a HYSA will offer a return 15-20x more than a regular savings. This is called an annual percentage yield (APY). For example, as of July 2023, a regular savings typically offers ~0.40% APY (according to FDIC.gov) whereas HYSA’s are offering ~4% APY, which is 10x more!

The APY on a HYSA is variable, meaning that it can change. It will go up and down depending on how the economy is performing and what the Federal Reserve is doing to the interest rates (the Fed rates are used as a benchmark). Therefore when you sign up for a HYSA, the APY you see when you enroll is not guaranteed or locked in, it is subject to change.

Now, a CD is also a type of savings account that offers very competitive rates in comparison to a regular savings account. However the main difference between a HYSA and a CD is that in a CD you are agreeing to leave your money untouched (or “lock up” your money) for a specific amount of time, in return for a fixed interest rate (APY). Unlike the HYSA, the interest rate on a CD will not change. CD interest rates are also driven by the Federal Reserve & the economy’s performance. CD interest rates typically increase as the term of your CD increases.

It is important to note that within a CD early withdrawal penalties will occur if you wish to access your money prior to the term you agreed to.

With both a CD and a HYSA the money you earn in interest is subject to income tax in the year it’s paid. 

So, which one is right for you? It ultimately comes down to your needs, goal & and your timeline. Here is a simple suggestions of general guidelines to follow.