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CDs vs. Money Market: Which is right for you?

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Looking for the best way to stash your short-term savings? There are plenty of options available, but it can feel overwhelming. 

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.

How do money market accounts work?

Most banks and credit unions offer some version of a money market account. The idea is that you can deposit money and have relatively easy access to it. Note: A money market account is not to be confused with a money market mutual fund.

While these accounts are similar across most financial institutions, the best money market accounts tend to offer higher rates compared to traditional deposit accounts. That allows you to maximize how much your money earns. Sometimes money market accounts offer check-writing and access to a debit or ATM card. 

Money market accounts do have some limitations. You can only make up to six withdrawals per month, as mandated by the Federal Reserve's Regulation D. However, ATM and in-person withdrawals don't count toward the limit. 

If you're wondering whether your money is safe, the short answer is yes. Be sure to check, but depending on the financial institution, your account is usually FDIC- or NCUA-insured, so you're covered for up to $250,000 per depositor, per institution.

How do CDs work?

A certificate of deposit or CD is a type of deposit account found at banks and credit unions. These are time-bound savings accounts, which means you receive a higher interest rate in exchange for leaving your money with the bank for a specified amount of time. This is why you'll often hear them being referred to as "fixed," "time," or "term" deposits. 

Account holders earn a higher rate compared to savings accounts -- interest compounds differently depending on the bank, though it's usually daily. However, you may be required to make a larger minimum deposit, and you won't be able to add more funds once the initial deposit is finalized. 

Some CDs allow you to withdraw money whenever you want -- though that's extremely rare, particularly among accounts with the best CD rates. In most cases, you won't be allowed to make withdrawals until the maturity date, or when your contract is up. Otherwise, you'll have to pay a penalty for early withdrawal -- the amount varies between financial institutions and according to the length of your CD term. 

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.


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CDs vs. money market accounts

Both money market accounts and CDs offer the opportunity to earn a higher rate of interest than regular savings accounts, though CDs typically offer higher interest rates the longer you keep your cash in the account. These types of accounts also tend to require higher initial deposit amounts, often in the four- to five-figure range. 

While both of these account types are great for earning interest in the short-term, understanding how and when you'll use your cash will come in handy. That's because CDs tie up your money for a predetermined period of time, sometimes years. Paying a penalty for withdrawal before the time is up can wipe out the interest you've accumulated.

Though money market accounts offer a lower rate, you can withdraw money at any time (though some types are limited to six withdrawals per month). Plus, you get easier access, via checking-writing and a debit or ATM card. Think of a money market account as a hybrid checking and savings account, offering you the potential of higher rates with easy access to your cash. Keep in mind that if your balance falls below a certain amount your bank may charge you a monthly fee. CDs, on the other hand, don't have monthly fees.

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. 

Feature Money Market Account CDs
Large initial deposit Yes Yes
Withdraw funds anytime Yes No
High interest rates Yes Yes
ATM access Yes No
Check-writing privileges Yes No

How to open a money market account or CD

When you've decided which type of account you want, compare rates at a few banks and credit unions. You can start with our lists of the best money market accounts and CD rates

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. That way you can see if the account you want is even an option. 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.

Opening either account type is simple. You can usually start by heading to the bank or credit union website and clicking on an application form. Provide your personal details such as your name, address, phone number, and Social Security number. After you've made your initial deposit, your account is open.

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.

Still have questions?

Here are some other questions we've answered:

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