Money market accounts (MMAs) and certificates of deposit (CDs) both offer you a safe way to earn interest on your savings. However, money market accounts let you access your cash regularly, and most CDs will penalize you if you withdraw your funds before the maturity date. Additionally, MMAs have variable rates that fluctuate over time, and CDs have fixed rates that give you a guaranteed, predictable return.
Money Market Account vs. CD: Key Differences
| Feature | CDs | Money Market Accounts |
|---|---|---|
| Annual Percentage Yield (APY) | 0.01% to 5.75% (1-year) | 0.01% to 5.25% |
| Interest Rates | Fixed | Variable |
| Access to Funds | With penalty | Allowed regularly |
| Debit Card | No | Yes |
| Checks | No | Yes |
| Minimum Deposit | $0 to $1,500 | $0 to $25,000+ |
| Minimum Balance Requirement | $0 to $1,500 | $0 to $25,000+ |
| Monthly Fees | No | $0 to $10+ |
Note: Money market accounts may charge monthly maintenance fees if you do not maintain a certain minimum balance. Similarly, you may sacrifice interest earnings if you withdraw money from a CD early.
Annual Percentage Yield (APY)
MMAs offer competitive APYs that are usually higher than regular savings account rates but typically fall below CD yields. An MMA’s APY is affected by market conditions and may vary over time. CDs have fixed rates determined at the time of deposit.
Access to Funds, Debit Cards and Checks
MMAs typically allow you to use a debit card and write checks. You can also withdraw or transfer funds from your account up to six times per month, and in some cases, there aren’t any transaction limits at all.
In contrast, when you deposit money in a CD, you’ve committed to investing for a specific time period, ranging from a few months to several years. If you withdraw the funds early, you will likely have to pay a penalty in the form of a number of days of interest.
No-penalty CDs do exist but tend to offer lower yields than a traditional CD.
Minimum Requirements and Fees
MMAs may have a minimum balance requirement to earn the advertised interest rate or avoid fees. CDs often require a minimum deposit to open but do not have any additional balance thresholds. They usually do not have monthly maintenance fees.
When to Choose a Money Market Account Over a CD
- You Need Liquidity - If you anticipate needing access to your funds in the near future and don't want to commit to a fixed term, an MMA is more suitable. Most MMAs allow for a limited number of withdrawals, while CDs will penalize you for cashing out.
- Uncertainty about Future Needs - If you're unsure about your future cash needs, an MMA provides flexibility. You won't have to pay any withdrawal penalties if unexpected expenses arise.
- Interest Rates Are Rising - When interest rates are rising or expected to rise, having an MMA can be advantageous. Your MMA interest rate will increase in response to market conditions, whereas a CD will keep the same rate for its term.
- Short-Term Savings Goal - If you're saving for a short-term goal but still wish to earn interest, an MMA could be the better choice over a short-term CD, especially if the rates are comparable.
Best Money Market Accounts
| Best | Money Market Account | APY |
|---|---|---|
| Overall | UFB High yield Money Market | 5.25% |
| For Frequent Transactions | Redneck Mega Money Market | 5.05% |
| With Low Fees | Vio Bank Cornerstone Money Market Savings | 5.25% |
| For $50,000 Balances | Parke Bank Premier Money Market | 5.35% |
| With Branch Access | M&T Bank MyChoice Money Market | 2.29% |
| Business | First Internet Bank Business Money Market Savings | 3.45% |
Learn more about the best money market accounts.
When to Choose a CD Over a Money Market Account
- You Want Higher Fixed Returns - CDs typically offer higher interest rates than MMAs, especially for longer time periods. A CD can be advantageous if you're looking to maximize your interest earnings and can commit to the investment period.
- Interest Rates are Declining or Stable - A fixed CD rate is beneficial if you believe overall interest rates may decline or remain stagnant. It guarantees a set return regardless of market fluctuations.
- You Don’t Have An Immediate Need for Cash - If you have a sum of money you won't need for a while, depositing it in a CD can yield more interest than keeping it in a liquid account like an MMA.
- Specific Savings Goal Timing - If you're saving for a specific goal set for a known date in the future, a CD has a predictable term, and your funds will be available at maturity.
Best CD Rates
| Best | Bank/Credit Union | APY |
|---|---|---|
| 3-month CD | Signature Federal Credit Union | 5.5% |
| 6-month CD | Popular Direct | 5.51% |
| 1-year CD | LimeLight Bank | 5.50% |
| 18-month CD | Sallie Mae | 5.15% |
| 3-year CD | Valley Bank | 5.60% |
| 5-year CD | First National Bank of America | 4.75% |
Learn more about the best CDs available right now.
Alternatives to Money Market Accounts and CDs
- High-Yield Savings Accounts: These accounts offer higher interest rates compared to regular savings accounts, balancing liquidity and the return on your investment.
- High-Yield Checking Accounts: Similarly, funds in high-yield checking accounts earn more interest than traditional checking accounts. However, they may come with stipulations such as a minimum number of transactions per month.
- Money Market Funds: Money market funds are mutual funds that invest in short-term securities. They are not insured by the FDIC and carry some level of principal risk.
- Treasury Securities: As direct obligations of the U.S. government, treasury securities are a low-risk investment alternative, providing stability and security.
- Corporate Bonds: Corporate bonds are debt securities issued by companies, generally offering higher yields compared to government debt. However, they come with more risk, depending on the company's credit rating.
- Municipal Bonds: Issued by state, city, or local governments, municipal bonds offer tax advantages and are also considered low-risk, providing a steady income stream.
- Dividend-Paying Stocks: Dividend stocks provide investors with regular payments in addition to potential capital appreciation.
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