High-Yield Savings Accounts vs. Long-Term CDs: Pros and Cons Amid Rising Interest Rates

Accessibility versus Locked-in Rates: Fed's Recent Rate Hikes Prompt Examination of Best Choices for Locking in Returns

High-yield savings accounts and long-term CDs are both great ways to earn returns these days. The Federal Reserve has increased interest rates 11 times over the last two years and both these accounts provide an opportunity to earn impressive returns.
High-yield savings accounts offer strong returns while providing access to your money. Withdrawals can be made up to six times per month and these accounts are usually FDIC- or NCUA-insured up to $250,000. The downside is they have variable interest rates, which means you can't lock in current high rates for the long term.
Long-term CDs, while also typically FDIC- or NCUA-insured up to $250,000, allow you to lock in high interest rates for a longer term, providing a fixed and predictable return. However, access to funds is limited until the CD's term ends. Accessing your funds early may result in financial penalties.
High-yield savings accounts could be preferable if you need accessible funds and prefer to earn higher returns on your emergency fund or other short-term savings. The account interest increases as the rates rise, but the returns can't be predicted due to variable rates.
Long-term CDs could be the better choice if you have a long-term time horizon for saving, such as for a large purchase. This type of account can help lock in high interest rates for a substantial amount of time and discipline saving by imposing penalties for early withdrawals.