Money Market Account vs CD: What’s the Difference?

When it comes to saving money, several different options are available. Perhaps the most common is a traditional savings account which doesn’t always have the highest interest rate options, but your money is relatively easy to access and withdraw.

On the other hand, money market accounts and certificates of deposit tend to have higher interest rates with some withdrawal limitations.

But which of these alternative savings account options will work best for you? To determine that, let’s take a closer look at each one individually before comparing their different strengths and discovering where you can get each one.

What is a Money Market Account?

A money market account (MMA) is a money management account that operates like a hybridized version of a savings and checking account. MMAs can earn interest as savings accounts do, but they typically have higher interest rates than your average savings account might offer.  MMAs also often come with the option of ATM cards and checks, but these account benefits will depend on your bank.

Despite their apparent flexibility, MMAs have conditions, such as limited withdrawals per statement and higher minimum deposits and balance requirements per account.

What is a Certificate of Deposit?

Certificates of deposit (CDs) are term-based accounts provided by your bank or credit union at anywhere from three-months to five-year terms. Once you open a CD, your deposit must remain in the account throughout your term’s life. You may not make any withdrawals or additional deposits during this period, and the money you’ve already deposited is essentially locked away to earn interest until the term limit expires.

This is not to say that premature withdrawals are impossible, but if you pull money from a CD before the term, you may have to pay an early withdrawal fee (this varies by each bank, it’s best to read the terms of the CD before committing to them). Additionally, CDs require minimum deposit amounts that may limit the number of people who can invest in them.

Comparing MMAs and CDs

Money market accounts and certificates of deposit each benefit individuals in many ways. One is not better, but you may find that your circumstances mean one will work better for you than the other. So to determine which account type that may be, let’s compare a few key factors.

CDs Have Minimized Risk*

CDs are relatively low-risk compared to other long-term investment options like those the stock market offers. They don’t have fluctuating value, and you can’t lose money with a CD as you can if your stock options take a turn for the worse.

*Not all CDs are Federal Deposit Insurance Corp. (FDIC) insured. An uninsured CD is not insured against losses. You should review your CD terms or consult a financial professional before investing.

MMAs Have Easy Access to Funds 

MMAs let you transfer and withdraw money multiple times each statement period. And while you may be more limited transactionally with an MMA than you may be with a traditional checking or savings account, they still grant you more access to your funds than CDs do. This makes MMA accounts ideal for those who prefer easier access to their money without potential fees.

CDs Have Long-Term Plans for Funds

By their nature, CDs require that you give up access to your money for more extended periods. These terms range from a few months to several years, so it may be an excellent saving vehicle if you are saving for a big purchase, like a home. 

MMAs Have Short-Term Savings Boost

MMAs provide individuals with more competitive interest rates and returns than traditional savings accounts might, which can significantly help you meet short-term savings goals like a wedding, vacation, or new vehicle. 

CDs Have Off-Limits Savings Accounts

CDs can be very beneficial for individuals who want to give themselves a bit of financial self-discipline as they save up to meet bigger savings goals. Any money put into these accounts should be considered untouchable for the term’s duration to earn the expected interest rate.

Where to Get a Money Market Account or Certificate of Deposit

MMAs and CDs are both popular account types among the public, so it’s no surprise that they’re offered by many banks, credit unions, and financial institutions. You may find that your current bank offers these account types, so you can open your preferred option with them and manage all of your accounts from the same place. If you’re looking to receive the best possible rates, shopping around and comparing offers may be a solution that works for you.

Choosing the Right Account for You

Money market accounts and certificates of deposit are very different account types, so choosing the right one for you will depend on your specific requirements and goals. MMAs tend to work better for short-term investments where easy access to your finances is a priority. CDs do the same for longer-term investments where individuals are okay with limited access to their funds for an agreed-upon term.

We always recommend you consult a financial advisor/professional before making any financial decision. At First County Bank we have competitive CD and MMA rates that may work for your needs. If you’d like to learn more about our rates visit any of our local branches or call us today at 203.462.4400.