CD or MMA: Which Is the Smarter Investment for 2024?

Certificate of deposit (CD) yields are the highest they've been in years, especially on those offered through high-yield online banks. However, there are some money market accounts, or MMAs, with high yields as well. If you have extra cash on the sidelines as we head into 2024, which is the better choice for your money?

Advantages of using CDs

There are two major advantages to using CDs instead of money market accounts (or checking or savings accounts), and both have to do with yield.

First, you can typically get a significantly higher interest rate from a CD than with an MMA. As of this writing, the top yield you can find on our best 1-year CDs list is 5.55%. But the highest yield you'll find from a full-featured money market account (more on what that is in a bit) is 4.75%.

Second, with a CD, you'll lock in your interest rate for a specified amount of time. If you get a 1-year CD with a 5.55% APY, that's what you'll get paid for the entire year. On the other hand, money market interest rates can and do change regularly. If the prevailing interest rate environment starts to decline, banks might start lowering yields on savings and money market accounts.

The downside to using CDs is the time commitment. To be clear, this is why the bank is willing to pay more for CDs than savings accounts -- because you agree to leave your money there for a certain amount of time. If you need to withdraw from a CD early, you can, but you'll have to pay a penalty.

Advantages of money market accounts

On the other hand, there are some big advantages of money market accounts, which can be considered as somewhat of a hybrid between checking and savings accounts.

The most obvious advantage is flexibility. If you need to withdraw your money for a major purchase, you won't get hit with a penalty for doing so. But there's a lot more to consider.

As mentioned earlier, MMAs tend to pay lower rates than CDs, but it's close. And for giving up a little bit of yield, you can get some very convenient perks. True money market accounts offer check-writing privileges, so you can pay for purchases directly from the account, and also typically have ATM cards linked to the account.

It's worth noting that some MMAs don't have these features, particularly those with titles like "money market savings" or "money market deposit" accounts (but these often pay significantly higher yields).

Which is best for you?

There's no perfect answer, and it depends on you. If you have some cash sitting around that you know you aren't going to need for a while, it's tough to make the argument against CDs. However, money market accounts combine the high yields of online savings accounts with the ability to write checks and access your money through ATMs.

With all of this being said, these are very different financial accounts, and the best approach for you might be to use both of them. There's no reason you can't put money you won't need for a year or more in a CD and use a money market account for money you might need sooner to get a great combination of financial flexibility and high yield.