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Money market accounts vs. CDs
The key differences and how they can affect your ability to save
Money market accounts and certificates of deposit (CDs) can offer competitive interest rates and features, but they’re completely different products. Your choice between the two may affect how you access your money, the interest rate you’ll earn and more.
What’s the difference between money markets and CDs?
A few key differences to be aware of before choosing where to put your savings:
| Money market | Certificate of deposit | |
|---|---|---|
| About | Interest-bearing deposit account that provides flexible access to your money with check and debit capabilities | Locks in a fixed interest rate for a fixed amount of time and charges a penalty for withdrawing your money early |
| Interest | Up to 2.45% | Up to 3.1% |
| Check writing | Usually | No |
| ATM access | Usually | No |
| Eligible for FDIC insurance | Yes | Yes |
| Minimum deposit | Up to $25,000 | Up to $10,000 |
| Six-transaction limit | Yes | No |
| Withdrawal penalty | No — Unless you withdraw more than six times in a month | Yes |
Why do CDs pay more interest than other accounts?
When you deposit money into a CD, your money is locked away until it reaches maturity. And since you’re agreeing to keep your money in the bank for a fixed period of time, the bank is willing to pay you a higher interest rate.
Pros and cons of money market accounts vs. CDs
Money market accounts
Pros
- Flexibility. Money market accounts typically come with check-writing abilities and a debit card, giving you access to your money if needed.
- Solid APY. These accounts can pay APYs that are similar to or higher than savings accounts.
- Account features. Some accounts come with features like bill pay, direct deposit and budgeting tools.
Cons
- Possible deposit requirements. These accounts can have much higher deposit requirements than CDs.
- Fees. Monthly maintenance fees and other service charges are common with these types of accounts.
CDs
Pros
- Highest APY. Certificates of deposit can pay some of the highest APYs of all consumer deposit accounts.
- No fees. Unlike most deposit accounts, certificates of deposit don’t have monthly fees or other service charges.
- Encourages saving. With incentives to keep your money in the account and penalties to withdraw, you’re encouraged to keep saving.
Cons
- No account features. Unlike most deposit accounts, CDs don’t come with features like bill pay or direct deposit.
- Possible deposit requirements. Most require a minimum deposit of at least $500 to $1,000 to open.
- Limited access. You won’t be able to access the money in your account unless you’re willing to pay a penalty.
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How to compare money market accounts vs. CDs
When comparing your options, consider these factors that could affect how you save:
- Interest rates. You’ll generally earn higher interest rates with CDs, but consider whether that extra interest is worth restricted access to your money.
- Deposit requirements. Money market accounts generally have higher deposit requirements than CDs, though they can vary significantly.
- Features. While CDs generally have higher interest rates, they won’t offer perks and benefits like money market accounts might.
- Fees. CDs don’t typically have fees, whereas money market accounts could have service fees, overdraft charges, excess withdrawal fees and more.
- Access. Money market accounts offer far more access than certificates of deposit.
- Security. Both of these accounts are eligible for FDIC deposit insurance, but only if the issuing bank is covered.
Bottom line
Certificates of deposit often offer higher interest rates than money market accounts, but restrict access to you money. Money market accounts, on the other hand, may offer more general flexibility. Compare both options to find out which is right for you.
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