Growing your savings account balance can be a challenge if you’re new to the savings game, have conflicting financial obligations, or have a hard time making regular contributions to your savings account.
But the good news is that there are ways to boost your savings by making tweaks to your savings strategy, like where you choose to park your money.
Certificates of deposit (CDs) are one option for growing your savings substantially and holding yourself accountable to your savings goals. Although these accounts work a bit differently than traditional savings accounts, savers stand to earn greater interest on their balances—especially in a high-inflation environment.
How a $10,000 deposit could grow over time
When you open a CD, you’re committing to making an initial deposit into your account and leaving that money in your account for the duration of your CD term. This term could be as short as one month, or as long as 10 years. Making a withdrawal from your CD before the end of your term will likely result in an early withdrawal penalty (usually a portion of or all of the interest earned on your balance). Not all CDs will charge a penalty; certain CDs, like no-penalty CDs, will not penalize you for an early withdrawal.
Right now, the national average rate for a one-year CD is 1.54%. However, there are many one-year CDs that offer APYs above 4% and 5%.
“CDs come with a wide range of possibilities and can open financial doors depending on your future goals and financial needs,” says Chris Moore, director of deposits and payment strategy at Alliant Credit Union. “We’re seeing CD interest rates higher than in years past, so it’s a great opportunity for consumers to diversify their financial portfolios while receiving financial payouts exceeding what typically come from savings accounts.”
Say you invest $10,000 in a one-year CD with an APY of 4.50%. This means that over the course of one year, you’d earn $450 in interest. And, with a larger initial investment, you could stand to earn even more:
| Interest earned from a 1-year CD | |
| Initial deposit | Interest earned after 1 year |
| $15,000 | $675 |
| $20,000 | $900 |
| $25,000 | $1,125 |
| $30,000 | $1,350 |
| $35,000 | $1,575 |
| $40,000 | $1,800 |
| $45,000 | $2,025 |
| $50,000 | $2,250 |
How to decide between a CD and another savings vehicle
CDs can generate a significant amount of interest in a short amount of time, but they aren’t the only way to grow your savings. If access to your money is important, you might consider an alternative savings option such as a:
- High-yield savings account: A high-yield savings account works in the same way as a traditional savings account. It’s a deposit account at a credit union or bank that you can use for saving and earning interest on your money. The main difference between a high-yield savings account and a traditional savings account is that the high-yield savings account will offer a much higher yield—known as the annual percentage yield (APY)—on the money you keep in your account.
- Money market account: A money market account is somewhat of a combination between a checking account and a savings account. These accounts typically offer higher APYs than most checking accounts, but may offer similar features like check writing, debit card access, and the ability to make withdrawals and deposits via ATM. Similar to a savings account, there may be a limit on the number of withdrawals that can be made from your money market account each month.
Choosing the right type of savings account will depend on what you’re saving for. If you’re saving for a specific goal with a defined timeline, putting your money in a CD could be one way to grow your savings and ensure that you aren’t tempted to dip into your savings before you need to.
However, if you’re on the hunt for a savings account with a bit more flexibility, a high-yield savings account or money market account could be worth considering.
“CDs are a great option for those looking to save money over a short or long period of time. However, individuals considering a CD for savings should first evaluate whether they can financially support themselves for the entirety of the CD term without access to the deposited money,” says Moore.
If you decide to put your savings in a CD, test-driving this strategy with a one-year term could help you get a taste of what it’s like to lock up your money. And if interest rates fluctuate, a one-year term could work to your benefit. Rather than losing out on a higher APY if interest rates rise, a one-year term means that you could roll over your CD into a higher-yield option after just one year.
The takeaway
Being intentional about where you put your savings can translate to greater savings down the line if you select an account with a higher APY, lower fees, and a term that aligns with your savings needs and spending habits.
