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Money Market Accounts Vs CDs; When Should You Choose Which?

Brandi Marcene
Brandi Marcene
With a wealth of experience and a passion for all things personal finance, Brandi's the go-to expert for top-notch content. Whether you're looking to learn more about budgeting, investing or any other financial topic, Brandi's got you covered.

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Table of Contents

Money market accounts and certificates of deposit (CDs) are federally insured accounts available at many banks and credit unions. Both savings options usually pay higher interest rates than a traditional savings account and provide many benefits.

Takeaway Points

  • Money market accounts (MMAs) usually offer higher interest rates than standard savings accounts, with similar flexibility.
  • Certificates of deposit provide high, usually fixed, interest rates in exchange for securing your funds for a fixed term.
  • A money market account is a much better financial vehicle when you may have an immediate or pressing need for cash.
  • CDs usually offer a higher yield than MMAs. However, there are penalties if you withdraw your funds early.
  • Deciding where you should invest will depend on your financial goals and circumstances.

If you are new to saving money, it is essential to make your money work for you. This means it pays to save your funds in an account that earns interest on the principal amount.

You should choose an account that provides a competitive rate to best grow your savings, but also an account that will allow you to access your funds should you need to. So, which type of account is most suitable for you?

What Is a CD, And How Does It Work?

A certificate of deposit is a savings account that requires you to leave your funds deposited for a specific amount of time. When you open a CD at a bank or credit union, your funds are locked up for a specific duration of your choice, from seven days to many years, depending on the terms your financial institution offers. In exchange, your bank or financial institution pays a fixed rate to guarantee the interest amount you’ll receive at the end of the term.

This makes CDs a predictable investment option. The longer the term of the CD, the higher the interest rate will be. At the end of the term or maturity date, you can cash out the entire amount or “roll it over” for another investment term. CDs typically offer higher interest rates than money market accounts.

What Is a Money Market Account, And How Does It Work?

A money market account is a deposit account that earns interest, similar to a savings account. However, it also allows you access to your funds like a checking account. Money market accounts permit unlimited deposits and may allow a limited number of bank transfers, including check-writing options and debit card access.

With money market accounts, you can receive a competitive interest rate on your outstanding balance. They also allow account access through a debit card or an ATM at a bank branch or financial institution. This makes them a great option for those who need regular access to their funds.

When Should You choose an MMA Over a CD?

If you need regular access to your funds, a money market account is a better option than a CD. This is because with an MMA, you can easily make up to 6 withdrawals per statement cycle (according to federal limits) and also make as many ATM withdrawals as you like. Additionally, if you don’t have a specific savings goal in mind and are looking for more flexibility with your funds, a MMA may be the better option.

When Should You Choose a CD Over An MMA?

If your top priority is to earn the highest interest rate, you will benefit from investing in CDs. This is because CDs, particularly longer-term CDs, generally offer higher Annual Percentage Yields (APYs) than other kinds of deposit accounts. Additionally, if you have a specific savings goal in mind, such as saving for a down payment on a house or for retirement, a CD with a set duration can be a great way to ensure that you reach that goal.

It’s worth noting that both CDs and MMAs are FDIC-insured up to $250,000, meaning your funds are protected in the event that the bank or credit union fails. This adds an extra layer of security to your savings.

Ultimately, the decision between an MMA and a CD will depend on your financial goals and circumstances. It’s important to consider factors such as how much you have to save, how often you’ll need access to your funds, and your risk tolerance. By taking the time to research and compare your options, you can choose the account that best suits your needs and helps you reach your financial goals.

Comparison of Money Market Accounts and CDs

If your top priority is to earn the highest interest rate, you will benefit from investing in CDs. This is because CDs, particularly longer-term CDs, generally offer higher Annual Percentage Yields (APYs) than other kinds of deposit accounts.

On the other hand, if you need regular access to your funds, you will be better off with a money market account than a CD. This is simply because, with an MMA, you can easily make up to 6 withdrawals per statement cycle (according to federal limits) and also make as many ATM withdrawals as you like.

Money Market Accounts

  • Similar to a Savings Account: You have the option to withdraw money up to 6 times per month, usually with the convenience of a debit card.
  • Required Minimum Balance: Your MMA account may require a minimum balance to keep it open.
  • Interest Rate: Higher interest rates will help your funds grow faster. For example, on a deposit of $10,000, the difference between a 0.1% and 1% interest rate is about $500 after five years.


  • Set Duration: A CD comes with a set duration — typically several months or even years.
  • Potential Penalties for Any Early Withdrawals: If you require access to your funds, you can withdraw them. However, you may need to forfeit the interest earned or pay the penalty to do so.
  • Higher Interest Rates: Although CDs are less flexible than other saving accounts, they usually have higher interest rates. Also, the rates are fixed for the term of the CD. As a result, you know how much interest you will make.

Pros and Cons of Money Market Accounts


  • Simple to make occasional payments
  • Potentially higher APY compared to savings accounts
  • Insured by NCUA or FDIC
  • Some features of a regular checking account


  • You may need a substantial balance, such as $150,000, for the best interest rates
  • Typically have a variable interest rate

Pros and Cons of CDs


  • Fixed interest rates
  • Higher interest rates than conventional savings accounts
  • FDIC or NCUA insured
  • Different term lengths provide flexibility


  • No access to your funds while they are in the CD
  • Minimum deposit requirements
  • Costs and penalties for early withdrawals

Could I Lose Money In an MMA?

It is possible to lose money in a money market account, but it is highly unlikely. Money market accounts are considered low-risk investments, as they are FDIC-insured up to $250,000 per depositor. This means that even if the bank or financial institution fails, your funds will be protected.

Additionally, money market accounts typically invest in low-risk, short-term investments such as Treasury bills and commercial paper, which helps to minimize the risk of loss. However, it is important to note that the interest rate on money market accounts can fluctuate, and if interest rates decrease, the value of your account may decrease as well.

Final Thoughts

Whether a money market account or CD is best for you depends on your need and priorities for your savings. However, please keep in mind that there is no rule saying you cannot have both.

For example, you may want to have a CD for long-term goals, while a money market account for short-term goals.

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