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- When I graduated college, I had some money from internships and jobs that I wanted to put away, but I also wanted it to grow.
- I wasn't ready to invest in the stock market, so my dad suggested I open a certificate of deposit (CD) account. My money would grow at a set rate, but I wouldn't be able to access it until my CD "matured" after a certain term.
- I put $4,000 into two CD accounts and wish I'd put my money in a high-yield savings account instead - I could have earned more interest and I would have been able to access the money if I'd needed it.
- Find out who has the best high-yield savings account rate right now »
In 2018, just two months after I graduated college, I walked into my local bank and opened two certificate of deposit (CD) accounts. I had some extra money saved up from jobs and internships throughout my time in college and was hoping to use that money to move out of my parents' house once I got a job.
I had heard of investing, but was risk averse. My dad suggested I open a CD, a bank account with a fixed interest rate that's typically much higher than a regular savings account.
It was truly the first financially "adult" thing I had ever done, and I thought this money move would put me on the path to immediate financial success.
I now regret my decision and wish I had done something else with my money instead.
How do CDs work?
There is a clear financial benefit to CDs: They are extremely safe investments, and their interest rates won't change once you've locked in a rate. So, even if the market goes down, your money stays safe.
The caveat? Your money must sit untouched in the CD for a fixed amount of time, usually between one and 10 years. Once the CD "matures," you'll get your money back, plus interest. While you can withdraw money early from a CD, you'll typically face a steep penalty.
I put $2,000 each into two CDs: a one-year CD with an interest rate of 1.70%, and a two-year CD, at an interest rate of 2.20%. In the time since I've opened the accounts, I've made roughly $80 in interest. When my one-year CD matured, I renewed it for a second year.
But when my two CDs mature in six months, I plan to withdraw my money (and probably not use a CD again for the foreseeable future).
That's because I had been using the two CDs to house my emergency savings. Now that I've become well-versed in personal finance, I realize not having access to your money in the face of an emergency is a problem, to say the least.
I wish I had opened a high-yield savings account instead
I didn't have much in assets when I graduated college. Once I put $4,000 into the CDs, I only had a little money left over. I quickly realized that if something unexpected happened, I wouldn't have access to my money. I began to research alternatives and discovered high-yield savings accounts.
These are bank accounts available through brick-and-mortar or, more commonly, online banks, that pay a higher interest rate than a traditional savings account. While they typically have lower interest rates than CDs, you can withdraw your money at any time, penalty-free. You can also set up regular deposits, the same way you would with a regular savings account.
In 2018, when I opened my CD accounts, interest rates were especially high. Banks were offering high-yield savings accounts with rates of 3.00% - higher than my CD rates. Unlike CDs, most high-yield savings accounts don't have a minimum to start an account, and you can add or withdraw money anytime. The interest rate can change, though - most (if not all) high-yield savings account rates went down one or more times in 2019 when the Fed lowered interest rates.
If I had known about high-yield savings accounts at the time, I would have definitely opened one over a CD. I would be able to access my money anytime, in case I needed it for a serious emergency, or even for a life change (like moving or switching jobs). A lot can happen in two years, and tying my money up in an account is not the financially savvy move I initially thought it was.
Though high-yield savings accounts are a good place to leave some cash, I consider it only one part of my financial portfolio. I keep more emergency money in a regular savings account at the same bank where my checking account is housed (which allows for instant transfers) and have a long-term investing plan, which includes a mix of mutual funds and stocks.
Do as much research as possible before making a financial move - your future self will thank you.
- More savings and retirement coverage
- How to retire early
- The best high-yield savings accounts right now
- The banks with the best CD rates
- When to save money in high-yield savings
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