CDs vs Money Market Accounts: Which Is Better?

A well-conceived financial plan dictates that you maintain an emergency fund worth three to six months of your living expenses. You can use MMAs and CDs to diversify your investment portfolio or fund a short-term goal. Yields on deposit accounts have skyrocketed over the last year as a result of the Fed’s interest rate hikes — and that includes money market accounts. As a result, you can now find money market accounts with yields comparable to those found in savings accounts.

Money Market Accounts or CDs: Which Investment Is Better?

For example, you may be able to open a savings account with $100, but your bank may require a $1,000 deposit or even a $10,000 deposit for a money market account. A certificate of deposit is a fixed-interest savings account that restricts access for a set amount of time, or term. The length of most terms ranges from three months to five years or more. Usually, the longer the time, the higher the interest rate you earn. While other accounts let you add money at any time, a CD requires an initial deposit but will not allow you to add to the balance until the term ends.

Money Market Accounts vs. CDs: Which Is Better?

If your goal is to earn as much interest as possible and you don’t mind parking you cash for a while, then a CD is a great choice. If you want the flexibility to use your cash regularly but still maximize your savings, then a money market account could be just right. At Amerant Bank, we understand the importance of finding the right savings option that fits your needs.

For many people, CDs offer a secure place to hold their money and watch it grow. These accounts come with fixed rates, eliminating the risk of price fluctuations in the market. You may also find CD variations Money Market Accounts or CDs: Which Investment Is Better? to better fit your situation by speaking to your local financial partner. On the other hand, when the Federal Reserve cuts the federal funds rate, banks may reduce the interest rates they pay to savers.

Certificates of Deposits vs. Money Market Accounts: Which Is the Right Choice for You?

Money markets—both accounts and funds—function more like a standard bank account or mutual fund. For the most part, you can deposit and withdraw money as you see fit. There may be limitations on how many times you withdraw in a given timeframe, but in general, there is much more flexibility with money markets. Once you’ve found a money market account or CD you like, get familiar with the features and requirements of the account. Check out the minimum initial deposit amount, monthly fees (if you’re opening a money market account), and, if you’re opening a CD, how long you need to keep your cash on deposit.

  • All three deposit accounts have a few things in common — they’re relatively safe places to save your money and earn interest.
  • Money market accounts are better suited for people who are working up to a savings goal, while CDs might benefit those who are holding onto funds for a future purchase.
  • This makes CDs an ideal solution for individuals who want to focus more on capital preservation than growth.
  • CDs worth $100,000 or more are often called “jumbo CDs” and typically offer higher interest rates.
  • You are not permitted to make any withdrawals or additional deposits during your term.
  • CDs are best described as timed deposits that credit a fixed interest rate tied to a maturity date.

Both allow individuals to earn interest on their savings while keeping their money. However, there are some fundamental differences between the two that individuals should be aware of before deciding which one will suits respective savings needs. Finally, consider what the institution offers to help you manage your account and keep it secure. Features such as a user-friendly mobile app, mobile check deposit and multi-factor authentication can make managing your savings easier while protecting your online banking information. It’s important to compare money market accounts and CDs side-by-side to see where you’ll earn the most interest.

What are key similarities and differences between a money market fund vs. a CD?

When you open a CD, you have to decide how much money to put in the account and how long you want to keep the money in the account. At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict
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When not working, she is probably paddle boarding, hopping on a flight or reading for her book club. In some cases, CDs may be purchased on the secondary market at a price that reflects a premium to their principal value. But a bank CD with an early withdrawal penalty may not be the right choice when instant liquidity is important, like with an emergency fund.

You know you want to use $1,000 for birthday presents on your child’s birthday, and you don’t know how you want to spend the other $1,000. CDs worth $100,000 or more are often called “jumbo CDs” and typically offer higher interest rates. Here’s an overview of how CDs compare to money markets and how to decide which is right for you. There are plenty of options available, but it can feel overwhelming. Mitch has more than a decade of experience as personal finance editor, writer and content strategist. Before joining Forbes Advisor, Mitch worked for several sites, including Bankrate, Investopedia, Interest, PrimeRates and FlexJobs.

A balance of $100,000 or more, for example, could earn you a higher interest rate than an account with less than $10,000. Bankrate follows a strict
editorial policy, so you can trust that our content is honest and accurate. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. The entire application process from start to finish shouldn’t take long — many banks claim you can complete the process within minutes. After that, all that’s left to do is sit back and let your cash earn interest.

But you may be able to increase your rate by opening a step-up or bump-up CD. With a step-up CD, the bank will automatically increase the interest rate on your CD once during the CD term if interest rates for similar CD products rise. A bump-up CD allows you to request a rate increase once (and sometimes twice) per term if interest rates on similar CDs rise.

Money Market Accounts or CDs: Which Investment Is Better?

For example, if the money market account you like requires a $5,000 minimum opening deposit, and you only have $4,500 on hand, you’ll need to look for another account. As with money market accounts, CDs from banks and credit unions are insured up to $250,000 per depositor, per institution by the FDIC or NCUA. CDs and money market accounts help you earn a higher guaranteed rate of return. Choosing which is the right one for you depends on your financial goals and when you’ll need access to your savings. Let’s take a look at CDs vs. money market accounts, and how each can help you realize your financial goals. MMAs and CDs are strategic ways to save that earn interest on an initial deposit.

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