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Updated September 1, 2023

CD or money market account? 3 questions to help you decide

Setting aside and saving money for short- and long-term plans is a time-tested way to manage your finances. And after you’ve built up enough cash to cover a few months’ expenses, you can grow your money faster in a certificate of deposit (CD) or money market deposit account (MMDA).

Both CDs and MMDAs offer higher interest rates than savings and are backed by FDIC insurance, making them low-risk investments compared to stocks and bonds. That said, there are key differences that can make a CD or MMDA a better choice for your financial situation.

CDs: Guaranteed yield, predictable earnings

CDs are deposit accounts with three “fixed” aspects: a fixed interest rate, minimum investment amount, and term length, usually ranging from a week to five years. In most cases, the longer the term, the greater the interest rate. However, there may be a penalty for withdrawing money before the term is up.

When should you consider a CD? If you have a surplus of cash and won’t need to use the money right away, CDs are a great option. They typically offer higher interest rates than MMDAs, but you need to commit to leaving your investment in the account for the duration of the term.

Key differentiators

  • Guaranteed rate: If interest rates go down while your money is in a CD, no worries—you’re guaranteed your higher rate. On the flip side, if rates go up, you could miss out on higher yields.
  • Predictable returns: You’ll know on day one exactly how much you’ll have at the end of the term.
  • Incentive to save: If you withdraw money from a CD before the term is up, you might have to pay a penalty or forfeit the interest earnings.

MMDAs: Flexible options, convenient access

Money market deposit accounts are often confused with money market funds, which are uninsured investments in low-risk securities. In contrast, MMDAs are federally insured bank deposit accounts. They offer higher interest rates than regular savings accounts and you can access your money any time without penalty. Interest rates on MMDAs are often “tiered,” so the higher your balance, the greater your rate. Most MMDAs also offer a limited number of transfers and check, debit card, and autopay withdrawals each month.

When should you consider an MMDA? If you’re looking for a low-risk way to accelerate your savings but want access to your money, MMDAs are a good choice. You’ll earn more interest than in a savings or checking account without having to lock up your cash.

Key differentiators

  • Peace of mind: You can tap into your money if you need it, without penalty.
  • Convenience: Most MMDAs include check-writing, autopay, and debit card privileges.
  • Minimum balance: You may need to maintain your minimum opening balance to earn higher interest rates and avoid fees.
  • Flexible withdrawals: There may be a limit to the number of transfers and checks, debit card, and autopay withdrawals you can make each month, but there’s a workaround: in-person transactions don’t count toward that limit, so you can make as many in-branch withdrawals as you want.

CD or MMDA? 3 questions to help you decide.

1. Will I need to use the money?

If you’re sure you won’t need to use your cash immediately, a CD is the smart option. You’ll earn a higher interest rate, especially in a longer-term CD. But if there’s a chance you might need to use the money in the near future, you’ll probably be more comfortable in an MMDA.

2. What am I saving for?

If you’re saving for something specific like a down payment on a car or house, a CD is a good way to go, especially if you have a set time horizon. You’ll earn a guaranteed return, so you’ll know exactly how much you’ll have at the end of the term. For example, if you put $10,000 into a one-year CD with a 4% annual percentage yield, you’ll have $10,400 when the term’s up. Plus, because your money’s locked in for the duration, you’re forced to save it versus spend it.

3. Do I have an emergency fund?

It’s a good idea to have a liquid emergency fund with enough savings to cover up to six months of your expenses. If you’re still building up, an MMDA might be better because you can access your savings in an emergency.

Ultimately, your money will grow faster in a CD or MMDA than a traditional savings account. If you’re not sure which is right for you, or you’d like more information, schedule an appointment with a CBNA banker.

Explore our Financial Literacy Hub and our blog for content that helps you make money decisions confidently.

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