CD vs Savings: Difference and Comparison

In today’s fast-moving competitive world, it is of immense importance that hard-earned money is invested in the right place to enable it to grow energetically.


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There are multiple modes to invest in.CD and Savings are two of the most common and preferred options many choose.

In fact, to some people, CD and Savings may seem synonymous concepts. However, they are not the same. There are spring differences between CDs and Savings.

Key Takeaways

  1. A certificate of deposit (CD) is a type of bank account that holds a fixed sum of money for a specified period, offering a higher interest rate than traditional savings accounts. In contrast, a savings account is a basic, interest-bearing account for storing money and earning interest.
  2. CDs have a fixed term, and withdrawing funds before the term ends can result in penalties, while savings accounts allow more flexibility with withdrawals and deposits.
  3. CDs are best for individuals looking to earn higher interest rates without needing immediate access to their funds. In contrast, savings accounts are suitable for those who want easier access to their money and the ability to make regular deposits.

CD vs Savings

CD (Certificate of Deposit) offer higher interest rates than savings accounts, but require the account holder to deposit a fixed sum of money for a fixed period of time, ranging from a few months to several years. Savings accounts offer lower interest rates than CDs but provides more flexibility.

CD vs Savings

However, the above is not the only difference. A comparison between both the terms on specific parameters can shed light on subtle aspects:


Comparison Table

Parameter of ComparisonCDSavings
MeaningCertificate issued by a financial institution indicating the amount deposited, period, maturity value, and interest.Type of account maintained with a bank to deposit money to earn interest and withdraw as necessary based on requirements.
Which one provides higher interest?Provides high interest compared to SavingsLess interest compared to CD
Is it possible to access the account through an ATM?NoYes
Is it possible to withdraw money through cheques?NoYes
Is it possible to withdraw funds lying in the account at any time?No. In some cases, it may be possible with a penalty.Yes
Does it offer a higher rate of interest?YesNo
Could there be a penalty for withdrawing funds before maturity?YesNo, since there is no maturity period as such
Can it help to save for future purchases and education?Yes, as the money held is not instantly liquid, so less tendency for people to withdraw.No, because people will tend to withdraw funds from Savings regularly, and hence a large corpus generation may be challenging to achieve
Are additional deposits allowed over some time?No, the amount invested is a fixed amount at the commencementYes
Ideal for or most preferred byThose who want to earn high interest on their earned moneyThose who wish for instant liquidity
The perfect goal of the investorsSavings for medium or long termSavings for short-term and immediate withdrawals
Which instrument comes with more restrictions from the financial regulator?CD will have more restrictionsSavings will have fewer restrictions
Could there be a minimum amount required to open the account?Yes, and the amount can be more than Savings.Yes, but the amount required will be minimal (however, this may depend from bank to bank, and private banks may have a higher threshold)


What is CD?

CD means “certificate of deposit.” The CD is a financial instrument allowing the holders of the CD to earn interest at a higher rate than other similar alternatives available in the market.

In simple terms, a CD is a certificate issued by a financial institution, a bank, to a person or an entity indicating the amount of money being deposited, the rate of interest, the period of investment, and the maturity value.

The financial supervisory authority of the country regulates the CD being offered. For example, in India, the RBI regulates the issuance of CDs. As per the rules, not all financial institutions may offer CDs, and there may be certain conditions on the purchase.

The CD is considered less risky than other high-earning instruments, such as shares and debentures.CD places a restriction on the depositor not allowing to withdraw the funds until a specific maturity date has arrived.

This maturity date could be a certain number of days, months, or even years.

Ideally, financial institutions may provide relatively high rate interest on short-term CDs. Still, this practice could vary from institution to institution, and some may even offer high rates for long-term CDs.

Premature withdrawal of CD will attract a penalty.

certificate of deposit

What are Savings?

Savings means a bank account wherein people deposit money and withdraw as per their needs, subject to bank and legal limits.

Saving is a concept prevalent since ancient times, and people were tuned to increasing their wealth by depositing their money in Savings.

Savings is exceptionally fundamental to those who are looking for the availability of emergency funds at any time. A savings account doesn’t charge any penalty for premature withdrawal.

Savings also offer a decent interest rate with other facilities like the transfer of funds, ATMs, etc., being offered.

Savings may come with banks placing certain conditions or restrictions. This could mean limiting the number/amount of withdrawals in a particular period.

Some conditions can be relaxed based on the application of certain bank charges. The government of a country may restrict withdrawals in case of certain events, for example, the bankruptcy of a bank, or for instance, in India, the issue of demonetization in 2016.

In modern times, certain financial institutions provide Savings accounts with high-interest rates.

The rate, in some cases, may even come close to what other financial instruments offer.

Some Savings accounts may also offer flexibility for instant transfer to a fixed deposit account on the amount of money reaching a set threshold.

By providing these dynamic features, sure of the disadvantages associated with Savings have been eliminated.


Main Differences Between CD and Savings

  1. CD provides a high-interest rate on the money deposited. Savings provide less interest on the funds deposited.
  2. The CD does not provide instant liquidity on the funds deposited. Savings provides instant withdrawal.
  3. CD may have premature withdrawal charges levied. Savings will not have any early withdrawal charges.
  4. The CD is ideally preferred by people who want to keep a specific lump sum to earn a high-interest rate. Savings are preferred by working-class people who need instant liquidity.
  5. CD may help the creation of a future corpus for education or purchasing any substantial assets. Savings may not help generate a significant corpus as there will be continuous withdrawals since there are no premature withdrawal charges.
  6. CD will not offer withdrawal through ATM unless the maturity proceeds have been transferred to Savings. Savings offer the facility of ATM withdrawals.
Difference Between CD and Savings
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