Savings Account or CDs: Which is the better investment?

Find out the benefits of both investments and their main differences

Saving for a rainy day is very important, since you need to be ready for something unexpected to strike at any moment. But what's the best place and the best way to invest your money? Savings account or certificate of deposit (CD)? We wrote this post to help you answer that question. Check it out!

Benefits of a Savings Account

Practical and secure, savings accounts are one of the best-known and most popular forms of investment. Interest accrues every month, on the “birthday” of your investment. That means customers don't earn anything if they withdrawal before that date. Savings accounts are exempt from income taxes and have zero management fees, two important advantages.

Benefits of a CD

Certificates of deposit (CDs) are fixed income investments. Basically, you lend your funds to the bank, who then return them to you with interest. Some CDs can be redeemed at any moment, others take some time to mature. For the latter, the longer the period, the higher your earnings. For CDs, the main benefit is knowing ahead of time how much you'll earn from your investment, but it also has provides higher interest rates!

Side by side

The two investments are very similar. If you want to earn more, though, CDs are definitely the best choice. They're as safe as a savings account, but with significantly higher earnings. Let's look at an example:

If you put R$ 1,000.00 in a savings account, you'll have about R$ 1,119.00 at the end of two years. If you invest the same amount in a CD, you 'll have about R$ 1,168.00 at the end of the same two years, and that's after paying Income Tax on your earnings. That means the earnings from a CD are 41 percent higher than from a savings account.*

Another drawback from savings accounts comes from the financial market. When interest rates are very low, as is the case today in Brazil, savings account wind up earning even less. After all, it only pays 70 percent of SELIC (the Brazilian Central Bank overnight rate) plus the bonus rate.

Meet the Agibank CD, and come make your money earn more!

* Simulation with Interbank Deposit Rate (DI) of 8% p.a., SELIC of 8.30 p.a., zero bonus rate, CD rate of 118% of the DI, and savings account with deposits after May 4, 2012