Difference between Certificate of Deposit (CD) and Savings Account

Meaning

A Certificate of Deposit (CD) is a financial product offered by banks and credit unions where an individual deposits a sum of money for a fixed period.

A savings account is a deposit account offered by banks and credit unions that allows individuals to securely store their money while earning interest on their deposits.

Interest Rates

CD offers high rate of interest as compared to savings acoount.

Savings account provides low rate of interest.

Term vs. On-Demand Access

CDs have fixed terms during which funds cannot be accessed without penalty.

Savings accounts allow for immediate access to funds without restrictions.

Interest Payment

CDs typically pay interest at fixed intervals or at maturity.

Savings accounts usually accrue interest continuously and may pay interest monthly or quarterly.

Risk and Liquidity

CDs are low-risk investments with limited liquidity, ideal for long-term savings goals.

Savings accounts offer higher liquidity but with slightly more risk due to fluctuating interest rates.

Penalties for Early Withdrawal

CDs often incur penalties for early withdrawal before the maturity date.

Savings accounts allow for unlimited withdrawals without penalties.

Deposit Amounts

CDs typically require a minimum deposit amount to open the account.

Savings accounts may have lower or no minimum deposit requirements.

Flexibility of Deposits

Savings accounts typically allow for frequent deposits of varying amounts at any time.

CDs require a single lump-sum deposit at the time of opening and do not permit additional deposits during the term of the CD.