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CD versus money market account

By Sheyna Steiner · Bankrate.com
Wednesday, January 16, 2013
Posted: 5 pm ET

When it comes to interest rates, no banking product will really deliver these days. But yield or no yield, savers still need a place to stash their cash. So how do banking products stack up against each other -- for instance, certificates of deposit versus money market accounts?

CD rates tend to be higher than money market account rates. According to Bankrate's weekly rate survey, the national average money market account rate is currently tied with the average three-month CD rate of 0.12 percent.

This week, the national average for a one-year CD was a meager 0.27 percent. CD buyers trade liquidity for better returns, but it can be a double-edged sword. Breaking a CD early will likely lead to a hefty early withdrawal penalty, which could dip into principal.

Funds deposited into a money market account can be withdrawn nearly at will. Some banks offer check-writing privileges, but the number of withdrawals per month are limited. One benefit to money market accounts is that additional funds can be deposited over time, unlike a CD. Money market account rates will change as rates increase, too, which make them a slightly better choice for rate watchers concerned about locking up funds for a long time in a fixed-rate CD.

But, look out for minimum balance requirements in money market accounts. Racking up bank fees is a sad way to deplete savings.

Do you prefer money market accounts or CDs?

Follow me on Twitter: @SheynaSteiner.

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3 Comments
Matthew
January 18, 2013 at 11:29 am

Sheyna,

Agreed that rates are less than desirable for both products but could a unique solution be a hybrid type of product that allows customers to build in their own liquidity to a time deposit at inception? Customers could trade off between their guaranteed rate of interest and liquidity needs...higher their liquidity, the lower the rate of interest which is based on a bank's funding curve.

What are your thoughts?

Lightrider
January 16, 2013 at 10:24 pm

They all suck.