Money Market vs. CD Accounts

Being financially secure can bring you peace of mind like no other. Not only will you be able to do projects you’ve been thinking and talking about, but it can also allow you to live a more fulfilling life.

Financial security starts with saving money – which, as we know, isn’t always easy. When it comes to saving money, one of the first decisions you will need to make is choosing the right type of financial product, like the bank account where you’ll save your money.

When choosing the right bank account to save your money in, there are a few things that need to be considered, like the amount of money you want to invest and whether having easy access is important to you.

Choosing the right account can help you make your journey of saving money easier. This article will be looking at two different types of savings accounts – Money Market Accounts and CDs (Certificates of Deposit).

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Money Market vs CD

While both accounts are there to help you save money, they do so in very different ways.

Some features are common to both types of accounts, while other features tend to be very different.

Looking at these differences can help you understand which type of account will best help you achieve your savings goals.

Let’s look at this overview comparison chart to see the similarities and differences between these two types of bank accounts:

Feature Money Market Account CD
Minimum Balance High minimum balance High minimum deposit
APY Lower interest rates Higher interest rates
Liquidity Higher liquidity Lower liquidity
FDIC-insured Yes Yes

In the next sections, we will be looking at each type of account separately, including who it is for, its pros and cons, and then look at some of the best accounts available from banks and credit unions today.

Money Market vs CD: Money Market Accounts

Money Market Accounts are a special type of bank account that takes features from regular savings accounts and checking accounts.

While they are used to save money and offer reasonable APY rates, some accounts also come with debit cards and check-writing abilities. Most MMA accounts include added flexibility that can be important, especially if you’re just starting to save money.

Speaking of withdrawals, while you can withdraw money from a Money Market Account, there are some restrictions. These restrictions have been put in place by the Federal Reserve using what is known as Regulation D.

Regulation D was put in place to protect the bank’s customers. It is there to ensure that the bank always has enough cash to cater for withdrawals. Money Market Accounts are limited to 6 withdrawals per month.

You might be charged a fee if you go over the limit. In some cases, you can also have your account switched to a checking account or closed if done consistently.

While this might seem like an unfair limitation, it can help you make sure that you only withdraw money when you need to, allowing you to save more money.

Most Money Market Accounts also have a minimum balance, and some may charge monthly fees. These fees can vary from one bank or credit union to another and range anywhere from $100 to the thousands. Shop around to find an account with a balance requirement that works for you.

If you're considering a Money Market Account, be aware that this account can be referred to by other names, including MMA and Money Market Deposit Accounts (MMDA).

You might also come across Money Market Funds – this is a very different type of account that holds financial assets such as stocks and bonds.

Unlike an MMA account, it’s not insured by the FDIC (Federal Deposit Insurance Corporation) or NCUA (National Credit Union Administration) and is much riskier.

Who are Money Market Accounts for?

If you are new to saving, an MMA account might be the better choice for you because they allow you access to your money while still placing some restrictions that can help you hold back from over-withdrawing.

Remember that some accounts require a minimum balance to open or keep a minimum balance throughout the account’s lifetime.

If you don’t have the money yet, you might want to look into a high-yield savings account first, with some of these accounts offering even higher APY rates than MMA accounts.

Pros and Cons of Money Market Accounts

Money Market Accounts have their pros and cons. What you might consider a pro or a con will largely depend on two things – your current financial situation and your financial goals. This is why it is important to understand what you are trying to achieve first and then get the right type of bank account to get you there.

Pros:
  • High APY rate: Money Market Accounts typically offer high APY rates, but this will vary from one financial institution to the next.
  • Access to funds: You can access your funds at any time, with some accounts even including an ATM card and checks.
  • Safety: The FDIC or NCUA ensures most MMA accounts up to $250,000 – confirm this with the bank or credit union of your choice before opening the account.
Cons:
  • Withdrawals are limited: Due to Regulation D, you can only withdraw six times per month and may face charges if you are over-withdrawn.
  • Minimum balance requirements: Most MMA accounts have a minimum balance requirement.

Best Money Market Accounts

Below is a selection from our list of best money market accounts.

1. CIT Bank

CIT Bank’s Money Market Account has a low minimum balance requirement of $100, making it accessible to more savers. It features an APY rate of 0.55%, compounded daily, and paid out once a month.

2. Discover Bank

Discover Bank’s Money Market Account has a minimum requirement of $2,500 and an APY rate of 0.40%. The rate goes up to 0.45% if you manage to keep the balance above the $100,000 threshold.

3. UFB Direct

Opening an MMA account with UFB Direct requires a minimum deposit of $25,000. You will also need to maintain an average daily balance of $5,000 and an APY of 0.40%. The account also includes a VISA debit card and check-writing abilities.

Money Market vs CD: Certificates of Deposit (CDs)

CDs, short for Certificates of Deposit, offer a more structured way to save money because CDs are savings that must be held for a set amount of time.

This amount of time is known as the term, and it can range anywhere from 6 months to 5 years or more. Once the term passes, the CD reaches what is referred to as the maturity date and when you will get your money back along with interest accumulated over the CD’s term.

CD rates come in two types: fixed-rate CDs and variable-rate CDs.

Fixed-rate CDs offer a fixed APY (Annual Percentage Yield). The interest rate offered will remain unchanged over the term, helping you understand how much money you will receive come maturity date and everything is paid out.

On the other hand, variable-rate CDs feature an interest rate that can vary over the CD’s term. The bank or credit union will explain the rules by which the APY rate can change, which means it’s a little bit riskier since the rate can go up or down.

Even so, since CDs are held for an agreed-upon term, they tend to feature APY rates that are higher than those offered by Money Market Accounts. This is one of the main benefits CDs have to offer. On the flip side, should you wish to make an early withdrawal, you will most likely face early withdrawal charges.

CDs are also insured by the FDIC (if held with a bank) or by the NCUA (if held with a credit union). It is always advisable to confirm this with the financial institution of your choice before opening the account.

Who is a Certificate of Deposit right for?

Because CDs are held for a definite term, they are more suitable for long-term savers who can safely put that money aside, knowing that they will not need it for the duration of the term. This means that if you’re new to saving money, CDs might not be the right type of account for you, at least at the very beginning of the journey,

On the other hand, if you’ve been saving for some time or have come across a windfall, CDs can offer many benefits. Not only will it be less tempting to spend the money, but you can also earn quite a bit of interest on the money without risking too much.

In most cases, CDs also have a minimum deposit amount. These minimum deposit amounts can sometimes be expensive to a new saver, but shopping around can help you find the best deal.

Pros and Cons of CDs

Just like Money Market Accounts, CDs also have their own pros and cons. Of course, these depend on your goals and financial means at the time of opening the account. Do keep in mind that if you cannot open a CD now, it does not mean you will not open one in the future.

By understanding what this type of bank account offers, you can assess whether you want to include it in your short-term or long-term personal finance strategy, or perhaps not include it at all.

Pros:
  • High-interest rates: CDs offer some of the highest APY rates around, especially those that are held for a longer term.
  • Flexible terms: You can choose between short-term or long-term CDs.
  • Safety: The FDIC or NCUA ensures most MMA accounts up to $250,000 – confirm this with the bank or credit union of your choice before opening the account.
Cons:
  • Minimum deposit requirements: Most CDs have a minimum deposit requirement that can be quite high for first-time savers.
  • Less flexibility: Since CDs are held for a set term, access to funds is limited during the term, with the possibility of an early withdrawal penalty.

Best CDs

Below are a few banks that consistently offer competitive CD rates:

1. Discover Bank

Discover Bank offers CDs with APYs that range from 0.60% for a 1-year term CD to 0.70% for a 5-year term CD. There is a minimum deposit amount of $2,500 to open the account.

2. Ally Bank

Ally Bank’s CDs feature an APY rate that goes as high as 1.00% for a 5-year term but drops to 0.65% for a 1-year term CD. Unlike its competition, Ally Banks’s CDs have no minimum deposit requirements.

3. Connexus

Connexus is a credit union offering CDs with an APY that starts at 0.61% for a 1-year term and goes up to 0.91% for a 5-year term CD. The minimum deposit amount stands at $5,000

Money Market vs. CD Accounts: Which is Best for You?

Saving money is important. It can help you fund a big purchase, grow your emergency fund, or anything in between.

The good news is that by saving money, you can also get a return rate on the sum you save, helping you grow your savings account while maintaining a low-risk ratio.

This is because accounts are insured, so you know you’ll always get your money back should something happen.

When choosing the type of savings account, make sure you do your research to understand which one is best for you. Consider the initial deposit required, if any, as well the interest rates on offer.

While a traditional savings account may have low-interest rates, thanks to accounts such as Money Market and CDs, you can get much higher rates.

The financial decisions we make can have a huge impact on our lives as they can help us or stop us from achieving prosperity. We make money by making careful decisions when it comes to personal finance – and this is something both of these accounts can ultimately do.