Here's a Great Reason to Move Money Out of Your High-Yield Savings Account

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A lot of people I know are pretty happy about the interest they're earning from their savings accounts today. Many high-yield savings accounts are paying APYs upward of 4.00%. And some are even paying as much as 5.00%. That's pretty outstanding considering that with a savings account, your deposits are protected (provided your bank is FDIC insured and your balance isn't above $250,000) and you get the flexibility to add money or withdraw it at any time.

But while you might think a savings account is the best place for your money today, there's a different option that may be even better. So you may want to move some money out of your savings account and explore that alternative.

A CD could be a better bet

Even though you can earn a nice amount of interest in a savings account right now, you should know that savings account rates aren't set in stone. The 4.25% APY you're enjoying today could tumble to 4.05%, and then 3.85%, and so forth, as interest rates decline in general. And that's precisely what's expected to happen over the next year.

The reason savings account rates are so high is that the Federal Reserve raised its benchmark interest rate numerous times in 2022 and 2023 to cool inflation. At this point, inflation has calmed down enough that the Fed seems ready to start lowering its benchmark interest rate. And we could see that happen well before the end of 2024.

Once that occurs, we can expect savings accounts -- and CDs, for that matter -- to start paying less. And that's why now's a good time to take some money out of your savings account and transfer it over to a CD.

The nice thing about CD rates is that they're set in stone. If you sign a 12-month CD at 5.00%, you're guaranteed to earn 5% interest on your money for the year that follows. With a savings account, you could end up earning less interest than expected, depending on market conditions.

Be strategic when opening CDs

One advantage savings accounts have over CDs is that you can take out your money at any time without having to worry about a penalty. With CDs, you're usually dinged for an early withdrawal. For example, you could be looking at losing three months of interest for cashing out a 12-month CD before it matures, depending on your bank.

Of course, that puts you in a potential bind if you open a CD but end up needing your money unexpectedly a few months down the line. A good way to avoid that issue, though, is to set up a CD ladder.

All this means is that instead of opening one CD, you split your money up into various CDs with staggered maturity dates. To put it another way, rather than open a 12-month CD with $3,000, you may instead want to open four CDs worth $750 each with the following terms: three months, six months, nine months, and 12 months.

This way, you have $750 freeing up every three months. Using this tactic won't completely eliminate the risk of an early withdrawal penalty, but it should help minimize it.

Although savings accounts are looking pretty appealing these days, keeping all of your money in one isn't necessarily the best move. You should definitely keep enough cash in a regular savings account to cover three to six months' worth of essential bills (your emergency fund). But beyond that, it pays to look at CDs so you're able to lock in a guaranteed amount of interest before rates start to fall.

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