The battle of money market accounts vs. certificates of deposit (CDs) can be confusing because they both 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. Compare money market vs. CD accounts to see which one is right for you.
Money market accounts are a type of savings account that usually come with a debit card and checkwriting privileges. CDs are a type of savings account where you lock your money away until a set maturity date — usually three months to six years in the future. But you earn a higher interest rate in return.
A few key differences to be aware of before choosing where to put your savings:
| Best for | Earning interest while having flexible access to your money with check and debit capabilities. | Earning a fixed interest rate for a specific amount of time — but you’ll pay a penalty unless you open a no-penalty CD. |
| Interest | Up to 2% | Up to 2.5% |
| 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 — Unless it’s a no-penalty CD |
CDs generally pay more interest than money market accounts because 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.
But depending on the term of the CD, a money market account can have a higher or lower interest rate. For example, the national average interest rate on a money market account is
0.66%, according to the Federal Deposit Insurance Corporation (FDIC) as of October 16, 2023. A one-month CD has an average interest rate of
0.22%, whereas a six-month CD beats a money market account with a
1.57% interest rate. But if you choose to lock your money away for five years, a 60-month CD offers a national average
1.39% rate.
What you should do with your money after a fed rate cut ultimately depends on your savings plan. CDs are a great option because you can lock in a high interest rate before financial institutions drop APYs. But you’ll have limited access to your money — unless you open a no-penalty CD. Money market accounts may have lower rates, but your money is easily accessible in case of an emergency.
When the Fed cuts rates, you may want to take a diversified approach. Keep some cash in your money market or savings account, but move a portion of it into a CD. This allows you to maintain easy access to your money but also lock in a high interest rate before APYs drop.
Choose a money market account if you want to maintain easy access to your money. Money market accounts are often used for emergencies and vacation funds because you can withdraw money whenever you need to.
Choose a CD if you have a large chunk of cash you know you won’t need until a specific date. You’ll typically earn the best APYs on terms of 12 months or longer, so CDs are great for stashing away money earmarked for mid- and long-term goals.
While money market and CD accounts are both safe investment options, CDs may come out slightly ahead because of their minimal fees and locked-in interest rate.
You won’t lose any of your principal in either a money market or CD account if they’re in an FDIC-backed account unless you’re hit with fees. For CDs, you should be mindful of the early withdrawal penalty. If you don’t touch your money before it matures, you’re golden. On the other hand, money market accounts could have an assortment of fees, including monthly service fees, overdraft charges and more that can eat into your money.
Another thing to consider is interest rate fluctuations. CDs have a locked-in rate, whereas money market accounts are subject to change. So if you’ve secured a solid CD interest rate, you’re protected from future drops. Unfortunately, if the opposite happens and interest rates increase, you’ll lose out.
Money market accounts and CDs have a few pros and cons worth mentioning:
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. With the exception of no-penalty CDs, you can’t access your money unless you’re willing to pay a penalty.
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.
Use the tabs on the table to view popular money market accounts and CDs. Customize your view by sorting each tab by APY, minimum deposit and more. Or, click the “Compare” box next to your favorite choices for a side-by-side comparison.
CDs and money market accounts are both used for saving, but they couldn’t be more different. CDs often offer higher interest rates, but money market accounts give you more access to your money. The right account for you depends on your financial needs and goals. Before you open an account, compare both options carefully to find out which account is right for you.
