Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.
During times of financial stress, having money in the bank can be reassuring. Deciding where to keep your savings matters, as it can determine how much interest you earn and the fees you’ll pay.
Certificates of depositand money market accounts are two different options for savings. Both have pros and cons and one may be better suited to your needs than the other.
Taking time to learn the ins and outs of CDs and money market accounts can help you decide which one is right for you.
What Is a Certificate of Deposit Account?
A certificate of deposit account, or CD, is a type of deposit account that can be found at brick-and-mortar banks, online banks and credit unions. CDs are referred to as time deposit accounts because there are time restrictions imposed on when you can access your savings.
CDs are typically considered to be some of the safest places to keep your money since they offer a guaranteed rate of return. The risk of losing money in a CD account is very low. If your CD is held at a bank or credit union that’s insured by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA), then your accounts are protected up to the established limit. Both entities insure up to $250,000 per depositor, per account ownership category, per institution, in the event of a bank failure.
How Do CD Accounts Work?
CD accounts are relatively straightforward. Here’s an overview of how they work.
You open a CD account with a specific maturity term. Depending on the CD, this could be anywhere from 30 days to five years. During that maturity term, the money you’ve deposited earns interest. At the end of the maturity term, you can either withdraw your initial savings deposit, along with the interest earned, or roll all of the money into a new CD.
The interest rate and annual percentage yield (APY) varies from one CD product to the next. CDs can also have differing minimum deposit requirements.
Additionally, some banks and credit unions can offer specialty CDs that are different from standard CDs. Examples include:
- Bump-up CDs. These CDs give you the option to bump up, or increase, the APY on your CD during the maturity term. This may be a good choice if you expect the bank to raise the APY on the same type of CD that you have after you open your account.
- Step-up CDs. Step-up CDs also can help you to earn a higher rate, but you don’t have to ask the bank to increase your APY. Instead, the rate increases automatically at specific intervals during the maturity term.
- Add-on CDs. Typically, you’re only allowed to deposit money into a CD account at the initial account opening. An add-on CD allows you to make new deposits to an existing CD every month to grow your savings.
- Jumbo CDs. Jumbo CDs require a larger than usual deposit to open. For instance, instead of needing $1,000 to open a CD, you might need $100,000 or more to establish a jumbo CD account.
- No-penalty CDs. In most cases, withdrawing money from a CD before it matures can trigger an early withdrawal penalty. No-penalty CDs allow for convenient access to your savings without a penalty.
- IRA CD. An IRA CD combines the tax-advantaged features of an individual retirement account with a CD. Banks can offer both traditional IRA CDs and Roth IRA CDs, and they’re subject to the same IRA tax rules established by the IRS.
Having multiple CD options to choose from can be a good thing if you’re interested in building a CD ladder. A CD ladder consists of multiple CDs with varying maturity dates. The idea is that by having multiple CDs maturing at different times, you gain more liquidity and have more opportunities to access savings when one of them matures.
What Is a Money Market Account?
A money market accountis also a type of deposit account found at FDIC-insured banks and NCUA-insured credit unions. But, unlike a CD account, money market accounts don’t have time restrictions on when you can withdraw the funds. Under Regulation D, federal guidelines previously limited you to six withdrawals per statement cycle from a savings or money market account. But that rule has been temporarily suspendeddue to the COVID-19 crisis. Banks, however, can still impose withdrawal restrictions and fees for going over that limit.
Like CDs, money market accounts earn interest and APYs vary by bank.
What makes money market accounts different from CDs is how you can access funds. Depending on the bank, you may be able to write checks from a money market account and make purchases or cash withdrawals using a debit or ATM card. You may also be able to schedule electronic transfers between accounts at the same bank or different banks. Mobile check deposit and peer-to-peer paymentsare other ways you may be able to access money market account funds.
How Do Money Market Accounts Work?
Opening a money market account is something you can do online or in person at a branch. There may be a minimum deposit required to open a money market savings account, which can be as low as $1 or as high as $10,000 or more.
When you open your account, you can make deposits the way you would to a regular savings account or checking account. Your money earns interest and, if you need to tap into it, you can do so through the withdrawal options offered by the bank.
Money market accounts can come with fees, including monthly maintenance fees or minimum balance fees. You may also pay an excess withdrawal feeif you go over the allowed number of withdrawal transactions per month.
If you have check-writing abilities with your money market deposit account, the bank may limit the number of checks you’re allowed to write each month. There also may be daily limits on how much cash you can withdraw when using your ATM card.
FEATURED PARTNER OFFER
Discover® 9-Month Certificate of Deposit term
Minimum Deposit Requirement
$2,500
On Discover's Website
4.25%
$2,500
CD vs. Money Market Account: Which Is Better?
Both CDs and money market accounts can be useful tools for saving money. Whether one is better to use than the other depends on your goals.
For example, if you have money that you won’t need for the long term, you may be able to lock in a higher APY using a CD account. On the other hand, if you want to save money and earn interest while keeping those funds easily accessible, a money market account could be the better fit.
Knowing what you need a CD or money market account to do for you can help you decide which one belongs in your savings plan.
This table breaks down the main pros and cons to consider when comparing money market accounts and CD accounts.
| Certificates of Deposit | Money Market Accounts |
|---|---|
Pros | Pros |
• Time deposit account, with terms ranging from 30 days up to 60 months or longer • Can be useful for short- or long-term savings goals • Interest-bearing account, with some CDs offering competitive rates well above average • CD ladders make it easy to save for multiple goals while taking advantage of changing interest rates • Funds are protected when held at an FDIC-insured or NCUA-insured financial institution | • Money market accounts can offer convenient and flexible access to your money • Can be used for short- or long-term savings goals • Interest-bearing account, with some money market accounts offering above-average APYs • Since this isn't a time deposit account, there's no early withdrawal penalty to worry about • Funds are protected when held at an FDIC-insured or NCUA-insured financial institution |
Cons | Cons |
• Minimum deposit requirement is often $500 or more • Early withdrawal penalty may apply for withdrawing CD funds early • Not all CDs offer stellar savings rates | • Minimum deposit requirement for some MMAs can be steep • Fees charged for former Regulation D withdrawal limits may still apply • Not all MMAs offer great savings rates |
How to Open a CD vs. Money Market Account
Both a CD and a money market account can be opened at any bank or credit unionthat offers them. Many banks and credit unions now allow you to open CD and money market deposit accounts online.
When opening either one, there are a few things to consider for comparing accounts, including:
- Minimum deposit requirements
- Monthly maintenance fees
- Excess withdrawal or early withdrawal penalties
- Interest rates and APYs for deposits
For CD accounts, pay attention to the maturity term and what happens when a CD matures. Many banks will roll your savings and interest over to a new CD term automatically if you don’t specify that you’d like to withdraw your savings.
With money market accounts, check out options for accessing your money. Not all banks offer debit cards and check-writing privileges with their money market savings accounts. If you must have those perks, make sure to check the account details before opening.
The actual opening of a CD account or money market account is relatively easy. You’ll need to choose a bank, pick an account type and provide the bank with your personal information. This may include your name, address, date of birth, Social Security number and details of the bank account that you’ll be using to fund your new account. Once your new account is opened, you can start earning interest on your savings.
