Savings 101

Savings 101: Savings Accounts and CDs

Building up your cash reserves is always a smart financial move. Savings accounts and certificates of deposit (CDs) are among the safest ways to protect your money and reach short- and long-term financial goals.

But how do you decide which type of account will work best for you? Here's an overview of savings accounts and CDs and how you might use them:

Making the Most of a Savings Account

Whether you're trying to build an emergency fund, or have other short- or longer-term savings goals like a wedding or a big vacation, you might want to deposit your money into a savings account.

Many people choose a savings account to keep their money safe in the short-term or to build their emergency fund because they can withdraw from the account without any penalties.

If you're planning to make multiple withdrawals over the course of a month or on a regular basis, or need fast access to your cash, a savings account gives you that flexibility.

Savings strategies include automatically transferring funds into your savings account each payday or on a regular basis.

You can also open special accounts dedicated toward savings goals — whether for your wedding, home improvements, or a vacation.

Some of the key benefits of a savings account include:

  • Having quick access to your cash
  • Earning interest on your balance
  • FDIC insurance protection on your account up to $250,000 [1]
  • Low-risk investment
  • Potential to capitalize on rising interest rates
  • Unlimited deposits [2]

Some banks offer high-yield savings accounts, which offer an above-average interest rate.

If you're making larger deposits, but still want easy access to your cash in the event of an emergency or for bigger purchases, you could earn additional interest by depositing your money in a high-yield account.

How Do CDs Work?

CDs can also help you reach your financial goals over time. But unlike with savings accounts, you're committing to leaving your money in the account for a set period.

Because of this commitment, your interest rate is usually higher than a standard savings account. [3]

CD rates vary depending on the bank or credit union, but the average term ranges from six months to five or more years.

If you're trying to build your savings for bigger financial goals, such as buying a new car with cash, investing in real estate or even saving for a child's education, a CD is worth considering.

The key benefits of CDs include:

  • Higher interest rates than traditional savings accounts
  • Low-risk investment
  • “No-penalty" option available from some banks for early withdrawals
  • Option to lock in a guaranteed rate for the length of the CD term

What's CD Laddering?

If you choose to put your money into a CD, consider the benefits of “CD laddering." This is a savings strategy where, instead of choosing one CD with a set interest rate, you spread your deposit over multiple CDs to get the highest rates.[4]

With this strategy, you would put small amounts of money in short, medium and long-term CDs that mature at different rates.

When the short-term CD reaches maturity, you can take the money from that account plus interest and put it in a medium-term CD. When the medium-term CD matures, you can take the money from that account plus interest and put it into a longer-term CD.

CD laddering can give you some more flexibility and control over your funds, especially if you don't want to keep your money locked into a single account and are willing to tolerate a small amount of risk.

Over time, you might find that you end up with a higher yield on your entire investment with CD laddering. Just make sure to review the terms of your account and factor in early withdrawal penalties and other fees.

Savings and CDs Are Key Tools for Reaching Financial Goals

Consider when and how you want to use the money to choose an account or accounts that best meet your needs.

See how you can build up a cash reserve for home expenses or other purchases with the Barclays Savings Assistant today.


[1] Deposit Insurance FAQs, FDIC, 2020

[2]Reserve Requirements, Federal Reserve Bank

[3] National Rates and Rate Caps, FDIC, 2021

[4] A CD ladder can help you grow your money without the risks of the stock market, Business Insider, 2020