This blog is for informational purposes only and not an offer of any specific account or service. For current details on our high-yield checking accounts, certificates of deposit (CDs), free checking accounts, and other products, including terms and fees, please visit midflorida.com or speak with a representative. Account features, interest rates, and conditions may change. MIDFLORIDA Credit Union membership and eligibility requirements apply.

When you’ve just started saving money, a regular savings account is your best bet. However, once you’ve built up your savings, you might want to put your money in an account that earns more interest.

Unfortunately, many high-yield savings accounts also have high minimum deposit requirements.

Thankfully, there are two account types that offer a high interest rate without requiring thousands of dollars as a minimum deposit: Certificates of Deposit (CDs) and high-yield checking accounts.

Though they differ, these accounts will give you a better interest rate than a regular savings account.

Which is better for you: CDs or high-yield checking accounts? And where do CD annuities fit in? We’ll explain those differences so that you can decide which account is right for you.

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The advantage of a high-yield checking account

A high-yield account, such as the MIDFLORIDA Credit Union High Yield Checking account, has one main advantage over a CD: flexibility.

Once you open a CD, you can’t add or withdraw money until the CD’s term ends.

When you open a high-yield checking account, you can make deposits at any time. You can even make deposits in different ways, including:

•  Checks and cash
•  P2P apps like Paypal and Venmo
•  ATM deposits

Perhaps most importantly, you can easily access your money if needed.

The advantage of a CD account

High-yield checking accounts usually have an interest rate that rivals other high-yield accounts. However, you usually must meet some monthly conditions to get that interest rate.

For instance, to avoid a monthly maintenance fee on a MIDFLORIDA High Yield Checking account, you must:

• Make 10 purchases per month with your debit card
•  Keep a daily balance of at least $1,500
•  Enroll in MIDFLORIDA’s online banking service
• Direct deposit of $1,000 or more each month in your account cumulatively

On the other hand, CDs typically offer a competitive interest rate when you open an account with the minimum required balance.

It’s also worth pointing out that the interest rate is fixed. That means you can calculate precisely how much money you’ll have when the CD matures.

The importance of compound interest

CDs will also let you harness the power of compound interest. This is when the money you make in interest earns interest.

For example, let's say you put $1,000 in a 48-month Certificate of Deposit that has a 2.96% APY (Annual Percentage Yield). This APY already accounts for compound interest.

With monthly compounding, after one month, your account will earn approximately $2.47 in interest. The following month, you'll earn interest on your $1,000 plus the $2.47 you earned last month. This compounding will continue for the term of the CD.

When the CD's term ends after 48 months, you'll have $1,123.39. In contrast, if the interest wasn't compounded (simple interest), you'd only have $1,118.40.

This difference of $4.99 demonstrates the benefit of compound interest over time. While it may seem small for this example, the effect becomes more significant with larger deposits and longer terms.

A high-yield checking account can also potentially earn compound interest. The specific compounding details may vary depending on how the account is structured and the financial institution's policies. It's important to check with your bank or credit union for the exact terms of your high-yield checking account, as compounding methods can differ even if the balance fluctuates regularly.

What about CD annuities?

When discussing the pros and cons of CDs vs. high-yield checking accounts, you might also hear about CD annuities. The name is somewhat misleading, however.

A more accurate name for a CD annuity is a multi-year guarantee annuity, or MYGA for short. These are offered by insurance companies instead of banks.

CD annuities share several characteristics with CDs. They both have fixed interest rates and fixed terms. However, CD annuities/multi-year guarantee annuities often last for years and are usually used to help fund retirements.

How to decide between a CD and a high-yield checking account

By this point, you understand the advantages of CDs and high-yield checking accounts.

Now, you must ask yourself some questions to help pick the best account for your needs.

•  What is my risk tolerance?
•  What are my financial goals?
• How often will I need to use this money?

When you should choose a high-yield checking account

A high-yield checking account is an excellent choice if you want to earn interest on your everyday spending money while maintaining easy access to your funds. Here's when it might be right for you:

1. You typically maintain a higher balance in your checking account: If you often keep a substantial amount in checking, a high-yield account allows you to earn interest on money that would otherwise sit idle.
2. You value flexibility: Unlike CDs, high-yield checking accounts let you access your funds anytime without penalties, perfect for both daily expenses and unexpected needs.
3. You want to maximize returns on your everyday money: Earn competitive interest rates on the cash you use for regular transactions and bill payments.
4. You prefer a single account for spending and saving: High-yield checking eliminates the need to constantly transfer money between separate checking and savings accounts.
5. You're comfortable with digital banking: Many high-yield checking accounts are offered by online banks, which often provide better rates due to lower overhead costs.

Remember, while you may need to meet certain monthly conditions (like minimum deposits or debit card transactions), these accounts offer a unique blend of liquidity and earning potential that traditional checking accounts can't match.

When you should choose a CD

If you’re putting your savings toward a financial goal, you may want to consider  a CD.

Since CDs are so predictable, they can be a great help when setting financial goals. As an added benefit, you won’t be tempted to spend the money in the CD.

You can also use a CD to save money when you don’t have any immediate plans. If you get a windfall, for instance, you can put that money in a CD while you figure out the best way to use it.

Open a CD or high-yield checking account at MIDFLORIDA

CDs and high-yield checking accounts are good choices if you want to earn a higher interest rate. However, they are two very different accounts.

• CDs are predictable, which makes them ideal for saving money for a goal.
• High-yield checking accounts are better if you need easy access to your funds.

Regardless of whether you decide to open a high-yield checking account or a CD, MIDFLORIDA can help.

If you’re a new member and meet the conditions, you can even get a $200 bonus by signing up for a MIDFLORIDA Free Checking account.¹

With MIDFLORIDA, you'll enjoy personalized service and local expertise that sets us apart from big banking institutions, ensuring your financial needs are met with care and attention.

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1. Offer valid as of September 1, 2024 and may be canceled at any time. MIDFLORIDA Credit Union membership and eligibility requirements apply. See associate for details regarding fees and terms. To qualify for the $200 incentive, you must open a new Free Checking account with direct deposit ($500 cumulative which must post within 60 days of account opening; cash transfer app deposits do not qualify); accept and open online banking, eStatement, and a debit card; and complete 5 debit card purchase transactions which must post in one calendar month (to be completed within the first 60 days of account opening). No dividends are paid on Free Checking. Annual Percentage Yield is 0.00%. Limit one incentive per Social Security number. Past checking account holders and previous recipients of checking account incentives are ineligible. The incentive will be deposited to new Free Checking account after the qualifications have been met, and will be reported to the IRS. Minimum to open Free Checking is $50.