How does a savings account differ from a certificate of deposit (CD)?

A savings account offers liquidity while a certificate of deposit (CD) has a fixed term, making this distinction crucial for understanding the fundamental differences between these two financial products.

A savings account allows account holders to deposit and withdraw funds at any time, providing immediate access to cash as needed. This liquidity makes savings accounts an ideal choice for individuals who may need to access their funds for emergencies or other immediate expenses.

In contrast, a CD requires that the money be deposited for a set period of time, during which the funds cannot be withdrawn without incurring penalties. This restriction is what contributes to the potentially higher interest rates offered by CDs compared to savings accounts; because the bank can use the funds for a longer duration, it can offer a better rate in return.

The other options do not accurately characterize the differences between a savings account and a CD. While it's true that some savings accounts may have lower interest rates, that is not a definitive characteristic of all savings accounts as compared to CDs. Additionally, access to savings accounts is not restricted to online banking; they can also be managed via branches and ATMs. Lastly, savings accounts are not exclusively for business use, as they are commonly used by individuals for personal savings as well.