5 Reasons Why a Certificate of Deposit is Better than a Savings Account

Two low-risk investments include term deposits (TD) or certificates of deposit (CD) and savings accounts. Both come with high interest rates and offer a lot of money when the date of return arrives. While both have their subtle advantages, there are five reasons why term deposits or certificates of deposit are better than a savings account.

Better Interest

The longer the term agreed on in the certificate of deposit, the higher the interest rate you get. Although the interest rate in some savings account can match that of a TD or CD, they are generally lower.

Reduced Access

Whether it is a savings account or a TD, if you withdraw money from the account, a penalty is usually applied and is usually a reduction in the interest rate. When you have very little access to the money you are saving, there is a very small chance that you will be tempted to withdraw money.
One big advantage that term deposits have over savings accounts is that you cannot access the money that you have ”tied up” and you stand to lose a lot if you do. This deters people from withdrawing out of a term deposit. With a savings account, you can withdraw money with a small penalty.

Bigger Deposits

Many high interest savings accounts don’t allow you to make large deposits every month. There is usually a limit of the amount of money that you can deposit every month. With certificates of deposit, you can deposit as little as $5,000 and as much as $100,000. Combined with the high interest rate, certificates of deposit are better than savings accounts.

Flexible Terms

With savings accounts, you usually get a return every year. If you choose to get more periodic returns in a year, your total return over a year is less than an annual return. With TDs, you get more flexible terms and each with a high rate of interest. This makes term deposits more flexible than savings accounts.

You Know What You Get

When you deposit money every month in a savings account, you never really know how much you will get in return. However, with a term deposit or certificate of deposit, you know exactly how much you will get at the end of your term. Term deposits are hence a smarter and more controlled decision and do not grant unpredictable returns.

Depending on the bank chosen to open a savings accounts with, there may be great benefits; more so than term deposits. However, looking at the average savings account and certificates of deposit, the latter is superior in at least five different ways; regardless of the source.

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