Money Market Accounts or CDs: Which Investment Is Better?

MMAs offer regular access to your money with rates similar to savings accounts, while CDs have higher interest rates and secure your money until the end of the term. With these structure and function differences, you may wonder which is better for your situation. For example, you may find online banks offering an interest rate and APY of 0.50% or more on savings accounts.

Money Market Accounts or CDs: Which Investment Is Better?

A savings account is a deposit account found at banks and credit unions that you can add money to regularly. You can link this type of account to other accounts, such as a checking account. Savings accounts are available at traditional banks, credit unions, and online banks.

What Is the Difference Between a Money Market Account and a Certificate of Deposit?

Some key differences among them, however, include how much they cost, how they limit withdrawals and how much you can earn over time. Here’s a breakdown of these accounts, how they differ from one another and how to choose the right one for you. These products also come with more restrictions than are placed on traditional savings accounts. In exchange for the higher APY, both CDs and money market accounts tend to require a minimum deposit amount when opened.

  • Money market accounts with higher yields typically require you to maintain a higher balance to earn the highest APY, but you may need more money up front to open a CD.
  • CDs and money market accounts help you earn a higher guaranteed rate of return.
  • After the two-year CD matures and has rolled into another three-year CD, you will then have a three-year CD maturing every year that follows.
  • Attempting to withdraw your money before that date may trigger penalty fees.
  • CDs will generally pay higher interest than MMAs, especially for longer maturities.
  • In exchange for the higher APY, both CDs and money market accounts tend to require a minimum deposit amount when opened.
  • MMA rates are typically higher than basic savings accounts and short-term CD rates.

Plus, you get easier access, via checking-writing and a debit or ATM card. Think of a money market account as a hybrid checking and savings account, offering you the potential of higher rates with easy access to your cash. Keep in mind that if your balance falls below a certain amount your bank may charge you a monthly fee.

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Additionally, CDs make an excellent option for saving without the risk of spending hard-earned cash. You are not permitted to make any withdrawals or additional deposits during your term. Traditional CDs will charge a penalty if you need to withdraw money.

Money Market Accounts or CDs: Which Investment Is Better?

CDs can also require high minimum deposits, whether $500 or $10,000. This limits potential customers from opening a CD if they can’t safely set that amount of money aside. If you were to try to make a withdrawal during your term, which isn’t how CDs are designed, you’ll face a pretty hefty penalty. This usually deducts days or months of interest earned from your withdrawal depending on your CD term length. Your cash can go into many different bank accounts, and it’s helpful to know the pros and cons of account types. Money market accounts with higher yields typically require you to maintain a higher balance to earn the highest APY, but you may need more money up front to open a CD.

CDs vs. Money Market: Which is right for you?

You can add and withdraw money as you need to, but you won’t get a checkbook to access the money. Instead, you’ll have to rely on online transfers or make withdrawals in person at your bank. Some banks will let you make ATM withdrawals if you have a debit card linked to a checking account. Money market accounts are similar to savings accounts, but they can offer higher interest rates.

Does a CD earn more interest than a money market account?

CDs tend to have higher rates than money market accounts and give no access to your money until a term ends.

The compensation we receive may impact how products and links appear on our site. Higher minimum deposits and balances can come as a cost of better interest rates. This usually means minimum deposits of $2,500 or higher, with some even reaching five figures. Some people also prefer the rigid rules of CDs as a way to keep them on the right track towards reaching their savings goals.

Risks of using money market accounts, savings accounts and CDs

You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines. Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. In order to compare these products, it’s important to understand their advantages and disadvantages. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.

  • CDs are often used to fund goals within a 10-year time frame, when you may not want to risk the price fluctuation of market-based options, such as a stock mutual fund.
  • A CD is a term-based account that earns interest, usually at a fixed rate, and does not allow you to access your money until maturity without a substantial penalty.
  • The main advantage is that a CD with a term of at least one year is usually going to have a higher interest rate than a money market account.
  • Usually, the longer the time, the higher the interest rate you earn.
  • For example, if the money market account you like requires a $5,000 minimum opening deposit, and you only have $4,500 on hand, you’ll need to look for another account.

While these accounts are similar across most financial institutions, the best money market accounts tend to offer higher rates compared to traditional deposit accounts. Sometimes money market accounts offer check-writing and access to a debit or ATM card. These accounts offer more flexibility than a traditional savings account, allowing you to easily transfer funds. Many financial institutions will offer perks similar to what you’d find with typical checking accounts. These may include debit cards, ATM access and check writing capabilities — make sure you understand before deciding. These types of accounts also tend to require higher initial deposit amounts, often in the four- to five-figure range.

MMAs generally offer higher interest rates than traditional savings accounts. The tradeoff is they often require a higher initial deposit or minimum balance. Money Market Accounts or CDs: Which Investment Is Better? Though money market accounts offer a lower rate, you can withdraw money at any time (though some types are limited to six withdrawals per month).

Generally, though, it’s wise not to exceed insurance coverage limits for an account. You’re covered up to $250,000 per depositor, per account ownership type, per financial institution at banks by the FDIC and by the NCUA at credit unions. While the rates paid by savings accounts, CDs and money market accounts are not tied directly to this rate, they are influenced by its changes. For example, brick-and-mortar banks generally offer regular savings accounts, often earning a low interest rate. Online banks, on the other hand, often provide high-yield savings accounts. You’ll also find savings accounts for kids and specialty savings accounts, such as a Christmas Club account.

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