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Interest rates are paused. Should you open a CD or high-yield savings account?

This week, the Federal Reserve decided to pause interest rate hikesfor the second time this year. This is welcome news to consumers, and while it means savings rates won’t go up much in the near future, there are still ways you can maximize your earnings in today’s rate environment.

Certificates of deposit (CDs) and high-yield savings accounts can both offer great returns, but there are some key differences between them. Which is better for you, given the Fed’s latest move? That depends.

Explore today’s top savings rates to see what you could be earning.

With interest rates paused, should you open a CD or high-yield savings account?

Here’s what you need to know to determine whether a CD or high-yield savings account is your best choice now that rates are paused.

What to know about CDs

CDs are deposit accounts that offer competitive interest rates compared to traditional savings accounts (and even some high-yield savings accounts). They’re an excellent choice for those who want a low-risk investment with a guaranteed rate of return.

With CDs, you deposit money for a predetermined period (usually from a few months to several years), and in return, you receive a fixed interest rate. So, if you lock in a rate now and rates go down in the future, you’ll still enjoy the same rate as when you opened the account.

The downside of CDs is that they’re less flexible than other types of deposit accounts. If you need to withdraw your money before the term ends, you’ll likely pay a penalty equal to some of the interest you’ve earned.

Explore your CD options online now.

What to know about high-yield savings accounts

High-yield savings account offers rates that can be 10 times higher than regular savings accounts — if not more. And while these rates may not be quite as high as some CDs, they’re often close.

With a high-yield savings account, you can deposit and withdraw funds as needed without facing penalties. In addition, because many high-yield savings accounts are offered by online banks, they tend to have low or no minimum deposit requirements and low or no fees.

The downside of high-yield savings accounts is that their interest rates are variable, meaning they fluctuate in response to market conditions. If rates go up, so will your earnings. But if rates go down, your earnings will, too.

In addition, since you have easy access to your funds at any time, this type of account can make it easier to dip into your savings before you really need them.

Compare today’s top high-yield savings accounts here.

CD vs. high-yield savings account: Which is better today?

So, which account is better when interest rates are paused? There’s no “right” answer, but there are some general points to consider when deciding between the two.

Take into account your savings goals and timeline. If you want to earn a higher, predictable interest rate and you have funds you won’t need anytime soon, a CD may be a better option. CDs can be well-suited to savings goals with a particular date in mind, such as building a down payment on a house you’d like to buy in a few years.

If you want a flexible account that allows you to easily access funds, a high-yield savings account likely suits your needs better. These accounts are great for emergency funds you may need to pull from at a moment’s notice.

The bottom line

When interest rates are paused, as they are now, it’s wise to choose investment options that offer a higher yield. Both CDs and high-yield savings accounts can be viable choices, and which is best for you depends on your savings goals, preferences and needs.

Bear in mind that this doesn’t necessarily have to be an “either/or” decision. One smart way to maximize your earnings while enjoying some liquidity is to open both a CD and a high-yield savings account. If you’re on the fence about which route is best for you, consult a financial advisor who can give you guidance based on your personal financial situation.

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