Saving Account and Certificate Of Deposit - A Brief Overview

Banks offer two types of accounts, Saving accounts and Certificate of Deposit, for saving money and earning an interest on them. As both these accounts are low-risk, they are easily accessible and you can also easily convert the money into cash.

The function of both these accounts is to help you save money for future use. Also, since these accounts are a kind of investment, their function is different from transaction accounts. Given below are a few of the characteristics the two types of accounts -

1. Accessibility

Savings Accounts

Savings accounts are flexible. Federal regulations limit the number of transfers from the account to six per month. This restriction doesn’t include going to the bank to withdraw money from the account or accessing the money stored in it by using the ATM card. These kinds of withdrawals are unlimited. Savings accounts therefore are an easy way to save and withdraw money.

Certificates of Deposit

Federal regulations are strict when it comes to CDs. These accounts are locked for a certain period of time, when you cannot withdraw money from them. Banks often charge a penalty when there is an early withdrawal from these accounts. CDs require the bank account holder to keep the money for a period of six months before they can withdraw from it. This usually differs between the banks and the scheme under which it is created. Some have a short period of 30 days while some can have longer periods like 1-5 years.

2.Amount of Interest

Savings Accounts

Savings accounts usually offer a low rate of interest. The interest ranges between 1-3 % and it remains the same for the entire period that the account is active.

Certificates of Deposit

Some certificate of deposit rates are higher than the savings accounts. There are CDs which have the same rate of interest for the entire period of the account’s existence while some have variable rates. The rates of such accounts vary with the national rate of interest or increases over time. CDs which are valid for a longer time period have a higher interest rate.

3. Security

Savings Account

This type of account is insured under FDIC, an insurance program. You get protection for a certain amount of money.

Certificate of Deposit

Protection in the form of insurance from FDIC is offered to this account so that you don’t lose your money if the bank fails.

When deciding which account you should open, you must consider some important points. Firstly, decide on how quickly you want to access your money. CDs have a longer waiting period than savings accounts.

Also, find out the interest offered on both the accounts and the penalties in case of withdrawals. Read the terms and conditions placed by the banks and financial institutions carefully and then go ahead.

Vijayraj Reddy
Vijayraj Reddy is founder & editor-in-chief of, a financial blog which helps people to earn money, invest money and save money. You can find him on Facebook & Twitter or send him email at [email protected]

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