Money Market vs. CD: Which Is Better?

Money markets and CDs are deposit accounts that share the goal of helping you grow your savings. But while these two savings products hold that common ground, they have distinct purposes and functions — here’s what you need to know about both.

What is a money market account?

A money market account is a deposit account with attributes of both a checking and savings account. Because MMAs are deposit accounts, they have deposit insurance provided by the FDIC or NCUA, which is typically up to $250,000 per depositor.

MMAs pay higher APYs than regular checking accounts on average. The national average rate for money markets is currently around 0.63%, but the best money markets can pay well above that, currently at up to 3.4% with Vio Bank Cornerstone Money Market. ⁽¹⁾

Additionally, MMAs often come with checkwriting privileges and a debit card, allowing you to access your money more easily. Even though you have more ways to withdraw your money, know that banks typically limit you to six withdrawals per month.

What is a CD?

A certificate of deposit (CD) is a type of savings product that is term-fixed. The money you deposit into a CD is locked for a set time — typically spanning a few months up to several years.

In exchange for locking your money up for a term, banks pay higher interest rates than regular savings accounts on average. The national average can range from 0.23% to 1.76%, but the best CDs pay higher rates, like 3.95% for 12 months with the First National Bank of America. ⁽¹⁾

Once your CD matures, you can either withdraw the money with the earned interest or let it renew. CDs are covered by FDIC or NCUA insurance and are best used for emergency funds or large sums you won’t need immediate access to.

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Money market vs. CD: What’s the difference?

CDs and MMAs are both wonderful savings tools, with many similarities. For example, both products have deposit insurance and can pay higher APYs than other deposit products.

However, there are some key differences, mostly having to do with fund access.

MMAs are more liquid accounts, allowing you to write a check or use a debit card to access your funds. CDs, however, lock your funds away for a predetermined term. If you need your money before the term’s end, you may have to pay a penalty or forfeit your interest.

Additionally, you can deposit funds as needed to a money market account. CDs typically do not allow you to add more until the term ends and you want to renew.

Lastly, with MMAs, the interest rate you earn may depend on your balance, as they often follow a tiered structure. On the flipside, CDs typically pay the same rate as long as the minimum deposit is met.

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When an MMA makes sense

Money markets aren’t fit for everyone’s financial situation. But, they may make the most sense over a CD when:

• You want easier access to your funds. MMAs allow you to withdraw in many ways, including checks and often a debit card.
• You prefer the flexibility of not being locked into a fixed term. Because MMAs are liquid, you can close the account or deposit more into it at any time usually with no penalty.
• You have short or medium-term savings goals. You may only need a place to stash your cash for a shorter period.

When a CD makes sense

Just like how money markets are better suited for some, CDs make the most sense for others. Consider a CD when:

• You want to resist the temptation to spend your savings. CDs are locked, so you can’t withdraw without paying a penalty.
• You want a set and guaranteed fixed interest rate over a term. The rates on CDs are guaranteed, so it may be best to open one if rates are projected to drop.
• You have a large sum that you will not need to access for a while. The nature of CDs locking your funds makes this the perfect self-control tool.

Alternatives to money markets and CDs

In some cases, neither a CD nor a money market may make sense for you. Here are some alternative savings and investment options in that case:

• High-yield savings accounts. A savings account that pays higher than average interest rates.
• Stocks. Shares of ownership in a company that can grow and pay a portion of profits to you.
• Cash management accounts. CMAs combine the core features of savings, checking and investment accounts.
• High-yield checking accounts. A type of checking account that pays interest on your balance, usually with a minimum balance requirement.
• Bonds. Investor-provided loans to a company, where the investor earns interest in exchange.
• Treasury bond. A long-term, low-risk loan issued by the government that pays a fixed interest rate.

Dive deeper: Investing guides

Bottom line

When it comes to picking the best savings account for you, CDs and MMAs are just two of those options. MMAs give you more flexibility and access to your funds, while CDs are locked accounts with guaranteed rates for the term.