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The key differences between a traditional savings account and a certificate of deposit (CD) are:
Liquidity: A traditional savings account allows for easy access to funds, typically offering unlimited withdrawals and deposits. In contrast, a CD requires you to deposit a sum of money for a fixed period, during which you cannot withdraw funds without incurring penalties.
Interest Rates: Savings accounts generally offer lower interest rates compared to CDs. However, savings account interest rates may fluctuate over time, while CD rates are fixed for the duration of the term.
Term Length: Savings accounts have no fixed term and can be used indefinitely. CDs, on the other hand, have fixed terms ranging from a few months to several years, during which the funds are locked in.
FDIC Insurance: Both savings accounts and CDs held at FDIC-insured banks are protected by the Federal Deposit Insurance Corporation (FDIC) up to the maximum allowed limit per depositor, per bank.