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If you've got some extra cash to invest, you probably won't earn much with a traditional savings account—interest rates are usually well under 1%. You'll likely get a much better return with a money market account (MMA) or certificate of deposit (CD).
Money market accounts and CDs are both considered safe investments that offer higher-than-average annual percentage yields (APYs). Apart from that, there are some key differences to be aware of. CDs have higher interest rates, but money market accounts allow for easier access to your money. Here's a closer look at how they're alike and different so you can decide which one may be right for you.
Money Market Accounts vs. CDs: Key Differences
| Money Market Account vs. CD | ||
|---|---|---|
| Money Market Account | CD | |
| Interest rates | Typically higher than a traditional savings account; as of August 2024, some APYs are over 5% | Usually higher than money market accounts; as of August 2024, rates are as high as 5.65% |
| Access to money | You can withdraw money at any time, though some financial institutions limit account holders to six free electronic transfers and withdrawals per month | You'll pay an early withdrawal fee if you tap your funds before the CD matures |
| Check writing | Yes | No |
| Debit card | Yes | No |
| Minimum deposit | Some money market accounts require a minimum initial deposit, such as $100; others don't | You may need $500 to $2,500 or more to open a CD, though some CDs don't have minimum deposit requirements |
| Federal insurance | Virtually all banks insure money market accounts for up to $250,000 per depositor, per bank; credit unions offer similar protection | Most CDs are FDIC-insured for up to $250,000 per depositor, per bank; the NCUA offers similar coverage |
| Best for | Someone who wants to have easy access to their money | Someone who doesn't mind parting with their money during the CD term |
CDs Tend to Offer Higher Interest Rates
A CD will typically offer a competitive fixed interest rate if you keep your money in the account for a set amount of time. After making an initial deposit, your money will earn interest until the term ends. You'll then get your deposit back, along with your earnings. A CD's structure could also help you lock in a strong return before interest rates drop.
Rates on CDs, money market accounts and savings accounts fluctuate—and they usually move in the same direction as the federal funds rate. Financial institutions use this benchmark rate, which is set by the Federal Reserve, to determine the rates they offer on savings products (and the interest they charge on loans and credit cards). Having said that, a CD will generally earn more interest than a money market account.
Learn more >> What Causes CD Rates to Change?
Money Market Accounts Provide More Liquidity
A money market account is sort of like a hybrid between a savings account and a checking account. Your money will earn interest, but it isn't locked away from you. It's usually a different story with CDs.
You'll probably be hit with an early withdrawal penalty if you pull money out of a CD before the account term ends. This fee can vary but could be equal to 540 days' worth of interest. Money market accounts provide much easier access to your money. Withdrawals made at an ATM or brick-and-mortar bank or credit union may be unlimited. However, you may be limited to six free electronic transfers and withdrawals per month.
Tip: A no-penalty CD is a good option that doesn't charge a fee for early withdrawals.
Find High-Yield CDs
What Is a Money Market Account?
A money market account is a type of bank account that lets you earn more interest than you would with a traditional savings account. It also provides easy access to your money. In fact, most come with a debit card and checkbook.
You can use an MMA to pay bills, make purchases in person or online, or save for short- or long-term financial goals. You can also add money to a money market account after it's open.
Speaking of your balance, know that you might have to maintain a minimum balance to avoid fees. It's an important thing to consider if you're thinking about opening a money market account.
Learn more >> How to Open a Money Market Account
Pros and Cons of a Money Market Account
| Pros | Cons |
|---|---|
| Rates are usually much higher than traditional savings accounts | You could earn better long-term gains investing in higher-risk assets like stocks |
| It's easy to access your money | Free electronic transfers and withdrawals may be limited |
| It's considered a safe, low-risk investment that isn't tied to the stock market | There may be a minimum balance requirement |
What Is a CD?
A CD is a type of deposit account with a fixed interest rate and set time period, which can last anywhere from one month to 10 years. APYs can vary, but they're usually higher than money market accounts—and that can put some real muscle behind your savings.
There are several different kinds of CDs, but most don't allow you to contribute beyond the opening deposit. The idea behind a CD is to fund the account once, then leave it alone to let it grow. Consider it a hands-off investment that carries little risk.
Learn more >> Types of CDs
Pros and Cons of a CD
| Pros | Cons |
|---|---|
| Tend to offer higher interest rates than money market accounts | You won't have easy access to your money; early withdrawals can trigger a hefty fee |
| Returns are guaranteed, thanks to the account's fixed rate and term length | Minimum opening deposits, which vary from one financial institution to the next, can be steep |
| CDs are on the lower end of the spectrum in terms of investment risk | You could earn more over time by investing in stocks, real estate or other high-risk assets |
Example: How Much Money You Can Make With a CD vs. MMA
So is a CD or a money market account better? Your answer may come down to earning power. Let's say you have $10,000 to invest over a 12-month period. Here's how your money could grow in each type of account.
| CD earning 5.65% interest | Money market account earning 5.30% | |
|---|---|---|
| Interest earned after one year | $565 | $ 530 |
As this chart suggests, you'll likely earn more with a CD. This is especially true if you've got a large chunk of money to invest. A jumbo CD, for example, usually requires a $100,000 minimum deposit. If you put that much money into a CD with 5.65% interest, you'll earn $5,650 after a year.
When Is a Money Market Account the Better Option?
What does a money market account offer that a CD does not? An MMA might be a good holding place for your emergency fund or money you're setting aside for short-term financial goals. That's because it's relatively easy to access your cash if you need to—and your money will earn interest in the meantime.
Money market accounts stand out because you can earn a competitive interest rate without locking your money into the account. Opening deposits also tend to be lower when compared to CDs.
When Is a CD the Better Option?
A CD could be the right choice if you're OK with temporarily losing access to your money. (You'll want to have a strong emergency fund set aside in case you run into a financial hiccup before the CD term ends.)
You can also use a CD ladder to your advantage. This involves opening several CDs that have different term lengths. You can consistently free up money as each one expires. When that happens, you can either reinvest that cash or use it for something else. Just be aware that some CDs will automatically renew if you don't make a decision within seven to 10 days.
Learn more >> How to Adjust Your CD Ladder When Rates Change
Frequently Asked Questions
Whether you invest in a money market account or a CD, you can probably rest easy knowing that your money is safe. The majority of banks are insured by the Federal Deposit Insurance Corp. (FDIC). Deposit accounts from these banks are covered up to $250,000 per depositor, per insured bank for each account category. If you have more than that, you might consider opening a secondary account at another insured bank. The National Credit Union Administration (NCUA) offers similar coverage.
In most cases, CDs offer higher interest rates than money market accounts—but that isn't always true. CD rates can vary depending on the financial institution and term length. It's best to shop around and compare rates and terms before making a decision. Also be on the lookout for money market account fees and minimum balance requirements. Surprise penalties could eat into your returns.
The Bottom Line
If you're torn between a CD and a money market account, ask yourself what matters more—earning a higher interest rate or having easy access to your money? The right account for you will depend on your financial priorities and goals. You can also think a little outside the box and take advantage of both. For example, you might invest some money in CDs while keeping your emergency fund in a money market account. How your money grows is up to you.