Money market account vs. CD: How to choose

Money market accounts and certificates of deposit are both types of federally insured savings accounts that earn interest.

CDs generally offer the highest interest rates, but they also require you to set aside your savings for a specified period. Make a withdrawal and you get hit with a penalty. If you need more flexibility, pick a money market account.

When to open a money market account

  • You want to earn some interest
  • You want the ability to withdraw money on short notice, similar to the flexibility provided by a savings account.
  • You’ve found a money market account that earns more than a comparable savings account.

When to opt for a CD

  • You won’t need to withdraw your money for a predetermined period, usually a few months or a few years
  • You want to earn the maximum amount of interest without the risk associated with investing in stock or bond markets
  • You can meet the minimum balance requirement. Many banks require at least $500 or $1,000 to open a CD

When to consider a savings account

High-yield savings accounts, particularly those offered by online banks, generally have above-average interest rates. It makes sense to go with a savings account if you find one that offers better rates than a money market account and don’t want to tie up your cash in a CD.

And both money markets and CDs sometimes have higher minimum balance requirements than basic or high-yield savings accounts. A savings account can still give you a good return if you don’t have much to deposit.

Once you’ve decided whether to put your money in a CD, savings account or money market account, you’ll want to look for financial institutions that offer the best rates. Some banks and credit unions will let you open an account online, while others may require you to visit a branch or call, depending on the type of account.

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