I thought I'd open a CD to save up my down payment, but after doing my research I chose an Ally high-yield savings account to earn 20 times more on my money

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I considered opening a CD but ultimately decided to get a high-yield savings account from online bank Ally instead. The author is not pictured.

• Author Sarah Li Cain and her husband were saving for a down payment on their house, and had to decide: Where should they keep their savings?
• Knowing they'd need the money in the near future, they looked at putting the cash in a certificate of deposit (CD), an interest-yielding FDIC-insured savings instrument.
• However, because they weren't sure exactly when they'd need the money, and they wanted to keep putting money into savings, they decided on an Ally high-yield savings account for its flexibility instead.

When my husband and I were saving for a down payment for our first house, we wanted to make sure to stick our savings in a place where it would be relatively safe, yet earn us a bit in interest. While we weren't sure when we'd find our home, we knew it would be within a couple of years.

When doing some research, I considered opening a CD (certificate of deposit) but ultimately decided to get a high-yield savings account from online bank Ally instead. There's nothing wrong with CD - in fact, it can be a great tool depending on your needs - but it wasn't right for mine.

Here's why.

I wanted to make additional deposits

I wanted an account that would let us put in additional money after we opened it. That way, we could automate some of our savings and add in any additional money when we had extra cash. Unfortunately, CDs don't allow you to put in additional money until the account matures. That meant whatever we deposited was it.

There are CDs that do allow additional deposits, but those were few and far between. 

I didn't know when I'd need the money

When my husband and I started working with a realtor, we knew we wanted to find a place before our lease ran out, but I also knew that it could take a while before we found something.

Sure, if I had stuck the money in a CD, we could have figured it out. However, if we needed the funds for the house closing and the CD hasn't matured yet, then taking the money out would have been a bad idea. That's because in most cases, if you take money out of your CD before maturity, you'll have to pay a penalty - typically a percentage of what you earned in interest. Doing so would have negated the earnings.

Since I couldn't be sure when exactly we'd need our down payment, I couldn't agree to a set maturity period for a CD.

Some of the rates weren't as good as high-yield savings accounts

Just to be clear: Many CDs have very competitive interest rates and can be higher than high-yield savings accounts. However, these tend to have longer terms - the ones I saw were for a minimum of three to five years. I knew we wanted to purchase a home in less than three years (more like in the next six months) and the rates for CDs weren't that great for that timeframe.

Ally's interest rate (2.20% at the time of publishing) is one of the highest we've seen. It's comparable to rates you'd find for CDs, with more immediate access to our cash. A 2.20% interest rate means that money earns 20 - or even 200 - times more than it would in a traditional bank account, which typically pays only .01% to 0.1% interest, if anything.

Reasons why you should consider a CD

Just because a CD wasn't right for my needs doesn't mean that it won't be right for you. Maybe you have a short-term savings goal that has a more predictable timeline than buying a house. In that case, if you can find a competitive rate, it could make sense to open a CD, as long as you don't withdraw it before the maturity date.

Another reason it could make sense to open a CD is if you already have a small chunk of cash you want to stash away. That way you can keep it in a safe place (like savings accounts, CDs are FDIC-insured) and let it grow for the term you chose until it's time to take it out. Plus, the early withdrawal penalty can be enough of a deterrent for you to leave the money as-is, especially if you're tempted to withdraw cash even if it's earmarked for savings.

No matter what your short-term savings goals are, do your research to make sure whatever account you choose is the best for you. There are numerous comparison tools so you can get a comprehensive view of features such as minimum opening deposit, interest rate, fees and any account restrictions.

As for me, I'm happy with my choice. My husband and I do have CDs for other savings goals, but it wasn't the right one for our house down payment. And as far as my Ally high-yield savings account: I'm obsessed.

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