There are several options to safely store money, but deciding on which option to choose is a little easier when you know you can grow your nest egg while it’s tucked away. Certificates of deposit (CDs) and money market accounts (MMAs) can do just that. They are alternatives to traditional savings accounts and are not only secure but provide higher rates with low to no risk of losing value. What better way to achieve two goals at once – the ability to earn more while your money is in safekeeping, right? What differentiates CDs vs. MMAs is their yield, guaranteed interest rate or rate of return, and flexibility.
What are CDs?
A CD is a bank account that can be opened at a bank or credit union with an interest rate that is generally higher than a regular savings account. CDs typically have a fixed-term length, fixed-term rate, and fixed date of withdrawal, known as the maturity date, and typically have a minimum and maximum dollar amount requirement to open. Leading up to the maturity date, your deposit will earn a fixed CD rate, and when it reaches its maturity, you’ll not only get your initial deposit but also the interest it’s made on top of that. With most CDs, you can’t add money beyond your initial deposit.
CDs are considered low risk as they typically guarantee account balances up to $250,000 (potentially more depending on your account ownership structure) with banks that are members of the Federal Deposit Insurance Corporation (FDIC) or credit unions who are insured by the National Credit Union Association (NCUA).
What are MMAs?
An MMA is different from a CD as it’s like a combination of a checking and savings account. You can open an MMA at a bank or credit union, where it typically provides higher interest rates than your traditional savings and checking accounts, but less than a fixed-rate CD, and provides more flexibility than a CD or a high-yield savings account.
MMA accounts allow you to deposit and withdraw money at any time and may allow you to use a debit card or checks to withdraw or spend money when needed. As you deposit money into the account, interest is earned. However, unlike CDs, interest rates are not fixed and can fluctuate daily, which means they can rise or fall on any given day. Financial institutions usually reserve higher interest rates for higher balances, so keeping a higher minimum balance is usually a requirement to earn their best annual percentage yield. Rates may also be based on balance tiers and there may also be a minimum monthly balance that needs to be maintained or a service fee may be imposed.
And just like CDs, MMAs are low-risk deposit accounts as they are FDIC- or NCUA- insured for up to $250,000, this is based on, or depends on, account ownership.
CD vs. MMA
CDs and MMAs are both low-risk and usually provide higher interest rates, but what sets them apart from each other is the rate offered, the fixed interest rate, and accessibility to funds. With CDs, you’re encouraged to leave funds in the CD until it’s reached maturity as most financial institutions will charge an early withdrawal penalty/fee when you withdraw funds from your CD before its term ends. MMAs, however, provide flexible savings and regular access to the money in your account at any given time. But keep in mind you earn more if you leave money untouched.
Below are additional key factors and terms that will give you a better understanding of the benefits each option provides that can help you reach your savings goals and best align with the timeline of when you need to access funds:
| CDs | Money Market Accounts | |
| Interest Rates | Fixed (unless you open a bump-up CD) | Variable (fluctuates daily) |
| Accessibility | Yes, but with a penalty if withdrawn before the maturity date (unless you open a no-penalty CD) | Flexible, depending on if the bank limits the number of withdrawals each month |
| Minimum Deposit | Most financial institutions require $500-$2,500 (depending on the financial institution and CD) | Requires a higher minimum balance to earn APY – typically $1,000 – $2,500 |
| Debit Card Access | No | Yes, may have monthly withdrawal limits if offered |
| Check-Writing | No | Yes, may have monthly withdrawal limits if offered |
| Insurance | FDIC and NCUA insured up to $250,000, or more depending on account ownership structure | FDIC and NCUA insured up to $250,000, or more depending on account ownership structure |
| Fees/Cost | You may be charged an early withdrawal fee for withdrawing funds before the maturity date | A financial institution may charge a fee if the balance falls below the required minimum, or if you exceed the number of withdrawals allowed. Some banks charge monthly maintenance fees |
Which is right for you?
CDs are a great way to earn more if you want to save for a longer-term goal (i.e. retirement, college tuition, dream vacation), have a defined timeline, and want to take advantage of higher interest rates. But if short-term goals are what you’re after (i.e. emergency funds), MMAs are a way to save for those unexpected expenses while still having regular access to your funds. Deciding on whether you should open a CD or MMA will become clear when you define what your financial goals are and the timeline you need to access your cash.
FAQs
What’s the main difference between a CD and MMA?
CDs and MMAs are both low-risk and usually provide higher interest rates than a savings or checking account, but what sets them apart from each other is the accessibility to funds, interest rate, and guaranteed rate of return.
Which is more flexible, CDs or MMAs?
MMAs are more flexible as they allow you to deposit and withdraw from your account anytime. However, financial institutions may require a higher minimum balance to earn higher interest rates.
Which is better for long-term goals, CDs or MMAs?
If you have a lump sum of money you’d like to invest and don’t need access to the funds for a defined period, CDs are a great way to set it (choose a rate and term) and forget it (allow your funds to grow) before it reaches maturity.
