3 Reasons to Choose a Savings Account Over a CD This August

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There's a reason so many people are interested in opening certificates of deposit (CDs) this August. CD rates continue to sit at a record high, but that may not last much longer.

The Federal Reserve is scheduled to meet in mid-September to discuss its interest rate policies. And there's a good chance we'll see our first interest rate cut at that point. From there, CD rates have the potential to start falling. So opening a CD in August means getting ahead of that and setting yourself up to earn more interest on your money.

But while there are plenty of good reasons to open a CD this month, a savings account may be a much better option if these situations apply to you.

1. You need your money for emergencies

It's perfectly okay to tie up money in a CD that you don't need for emergency fund purposes. But you should never put money you have earmarked for emergencies into a CD. That money needs to be accessible to you at all times.

If you withdraw money from a CD before it matures, you could face a costly penalty. So make sure to keep your emergency fund in a savings account. And if you're not sure how much emergency savings you have, aim for enough cash to cover three full months of essential bills at a minimum.

2. You're intending to buy something specific and aren't sure of your timing

Maybe you're saving your money to buy a new car. Or maybe the funds you're thinking of putting into a CD are for a down payment on a home.

It's not always easy to get your timing down pat for big purchases, so you're better off keeping that money outside of a CD. You don't want to have to shift your plans or get hit with an early withdrawal penalty in case you end up needing your money before your CD matures.

Let's say you're saving to buy a new car in the spring of 2025. You might assume that a 6-month CD is safe to open in August. But if your engine starts having trouble in October, you may not be able to wait until the new year to replace your car.

3. You simply want flexibility

A savings account gives you the benefit of never having to stress over an early withdrawal penalty. Since savings accounts are paying pretty generously these days, it's not worth putting yourself through any sort of mental upheaval just to get a bit more interest out of a CD.

Say you have $5,000 on hand. A 12-month CD with a 5% APY guarantees you $250 in interest. A savings account with a 4% APY will pay you $200 if that APY lasts for a full year. If it drops, you might only earn $180 in interest, or $175, or $150. But let's say you're looking at a $100 difference. While that is a lot of money, it may not be worth the worry a CD might cause.

Just because CDs have gotten popular doesn't mean opening one is your best bet. Stick with a regular savings account if you can relate to any of these points.

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