High-Yield Savings Accounts Top 4.00% APY, CDs Reach 4.50%

Both certificates of deposit (CDs) and high-yield savings accounts (HYSAs) are low-risk investment options that ensure your savings are working for you. CDs and HYSAs offer a high annual percentage yield (APY) without the need for buying and selling stocks or worrying about market volatility. The best HYSAs often exceed 4.00% APY, while the best CDs may offer even higher rates, sometimes reaching 4.50% or more.

CDs are similar to savings accounts but with a key difference: they require you to commit your money for a specific term, ranging from three months to 10 years. Early withdrawal from a CD can result in penalties, including the loss of accrued interest or even some of your principal. However, CDs offer a guaranteed rate for the full term and no monthly maintenance fees. They are an extremely low-risk investment but come with the tradeoff of limited liquidity.

HYSAs, on the other hand, allow you to move your money at will, penalty-free, similar to a traditional savings account. They offer a high return compared to traditional savings accounts and are extremely low-risk for FDIC-insured accounts. However, some HYSAs may charge maintenance fees if certain conditions are not met, and rates are not locked in for a specific term, making them subject to change based on factors such as Fed decisions and economic conditions.

When deciding between a CD and a HYSA, consider your financial goals and liquidity needs. CDs are better for those who can commit a large sum of money for an extended period without needing it, while HYSAs are ideal for an emergency fund that requires quick access to funds. In some cases, it may be beneficial to open both a CD and a HYSA to take advantage of the unique attributes of each account.

Both CDs and HYSAs are unlikely to result in a literal loss of money, as accounts at FDIC-insured banks are protected up to $250,000 per depositor. However, inflation may outpace your earnings, potentially reducing your spending power. In such cases, you may want to consider investing some funds in more lucrative, albeit riskier, options to hedge against inflation.

In summary, both CDs and HYSAs are effective ways to increase your savings with minimal effort. If you have a significant balance in the bank, consider strategically opening both accounts to maximize your returns. You may find some of the best options at an online bank, which can keep operating expenses down and offer competitive rates.