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.
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 0.66%, but the best money markets can pay well above that, currently at up to 4.41% 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.
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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 1.83%, but the best CDs pay higher rates, like 4.26% 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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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.
Money markets aren’t fit for everyone’s financial situation. But, they may make the most sense over a CD when:
Just like how money markets are better suited for some, CDs make the most sense for others. Consider a CD when:
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:
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.
A callable CD can be terminated before its maturity date, unlike regular CDs. However, callable CDs tend to have higher APYs as a tradeoff.
At CD maturity, you can roll over your money into a new CD or cash it out and move your money to a checking, savings or investing account.
The highest CD rates in Texas are from Ciera Bank, Quontic Bank, Susser Bank, Ally Bank and more. See the full list here.
Some of the highest CD rates in Florida are from Quontic Bank, Bethpage Federal Credit Union, First Internet Bank and more. See the full list here.
Some of the highest CD rates in Michigan are from Flagstar Bank, Quontic Bank, First Internet Bank, Ally Bank and more. See our full list here.
Finding the best CD rate is vital to ensuring that your savings balance grows to the maximum amount possible in the shortest time.
High rates on a variety of terms with low opening deposit requirements.
Raisin’s Sallie Mae CDs offer a big APY for a small opening deposit.
See what the average interest rate was in the US for 3-month, 60-month, 1-year, 3-year and 5-year CDs since 2009 and learn how the economy affects rates.
