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How to Decide Between a CD and a High Yield Savings Account

Posted on: February 04, 2021

Your Michigan Bank outlines the purpose and benefits of each savings tool


The value of money has 2 dimensions:

  • the present value, or what money can buy today
  • the future value, which shows how much money can grow when invested over time

Banks in Michigan offer customers a range of ways to generate growth on deposited funds. Two popular savings tools include Certificates of Deposit (CDs) and high yield savings accounts, including Money Market accounts. Each option has a specific purpose and several benefits to consider as part of your savings plan.

Why Choose a Certificate of Deposit for Savings?

Certificates of Deposit (CDs) are savings tools with the following characteristics:

  • They require a lump sum deposit.
  • Funds must remain untouched for an agreed upon time period or term. Most banks in Michigan offer CD terms between 3 months and 5 years.
  • CDs provide a higher interest rate (return) in exchange for restricting your access to the funds.
  • Banks add earnings to your CD at intervals over time (quarterly or monthly) and report your return as taxable interest.
  • You'll report the interest as income on your tax return.

If you need to cash in a CD before maturity, you'll typically forfeit part of the interest earned and pay a penalty, depending on the policy of your Michigan bank.

Since CDs lock in a rate of return for the length of the term, you'll know the amount of interest you'll earn on your investment. To best compare rates at banks in Michigan, always look at the Annual Percentage Yield (APY) to know how much you could earn at the end of a calendar year. But, if interest rates are on the rise, you could lose out on better interest rates if your money is locked into a long-term CD.

Tips About CDs:

  • Select a CD when you have a lump sum of money in your savings that you won’t need for at least a few months up to several years.
  • Look at interest rate levels over time because longer-term CDs often outperform other savings options.
  • Opening multiple CDs with different terms gives you a ‘ladder’ to access your savings over time with the flexibility to take advantage of changing interest rates.

What Does a High-Yield Savings Account Offer?

A savings account stores your money and provides interest as a reward for trusting the bank with your funds. Banks in Ann Arbor, Detroit and Grand Rapids often have a variety of savings account options, including high-yield savings accounts that earn higher interest than regular savings accounts.

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Attributes of a high-yield savings account or money market account include the following:

  • You make a minimum opening deposit and can make additional deposits of any amount over time.
  • Funds are liquid, meaning you can withdraw your money at any time without penalty. However, savings accounts are restricted to no more than six withdrawals per month. If you exceed this amount, fees may be assessed.
  • Banks typically calculate and compound interest daily, then add the interest to the account monthly, allowing you to gain an additional return on your earnings over time.
  • Interest rates are variable, meaning they can increase or decrease at any time depending on your bank and the market conditions.
  • You'll report the interest as income on your tax return.
  • Many high-yield savings accounts are free (with no service fees) when you maintain minimum balances.

Tips About High-Yield Savings Accounts:

  • Choose a savings account if you want the flexibility to access your money. Savings accounts are useful for covering unexpected expenses.
  • Although most money market accounts include features such as online banking, bill pay, and check writing, you’ll earn more interest by leaving some funds untouched for several months.
  • Since interest rates for high-yield savings accounts can change over time, talk with your Michigan bank team about the best solution to meet your needs.

Savings accounts and CDs from banks in Michigan give you a safe, federally insured place to store and grow your money. To find the solution that aligns with your budget, check out Level One Bank’s savings and CD pages or contact our team. We're here to make banking more straightforward so that you can realize your dreams!

“A man who both spends and saves money is the happiest man, because he has both enjoyments.”

–Samuel Johnson

Posted in: Your Money, Your Life

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