Skip to Main Content

CDs vs. money market accounts: Which is best for you?

A man researches on a tablet.
ProStockStudio/Shutterstock.
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

When building your savings, it is important to choose an account that offers a competitive interest rate to best grow your savings, but also one that will allow you to access your money should you need to.

Money market accounts and certificates of deposit each provide a boost to your savings by offering competitive rates, but differ in how liquid — the ability to be converted into cash easily at any time — they are. Both accounts are readily available and can be found at traditional banks, online-only banks and credit unions, providing consumers with lots of options.

How money market accounts work

A money market account is a safe place to stash your money at federally insured financial institutions. These accounts can pay you competitive interest rates that can boost your overall savings. Money market accounts typically pay variable interest rates, which means the rate can rise and fall depending on market conditions.

In general, these funds are accessible and make it relatively easy for you to retrieve your savings a few times each month, though there may be limits to how many times you can move money out. Typically, the cap limits withdrawals to six a month, though some banks allow more, following a move by the Federal Reserve to relax the limit in response to the coronavirus pandemic. Contact your bank to confirm its withdrawal and transfer policies.

Money market accounts typically come with a debit card and/or checkbook, making it easier to access your funds should the need arise.

How CDs work

A certificate of deposit, or CD, is another type of federally insured savings account easily found at banks and credit unions (where they are often called share certificates). CDs pay a fixed interest rate. Longer-term CDs, such as five-year CDs, tend to pay higher rates than shorter-term CDs, like six-month CDs and one-year CDs. Unlike money market accounts, however, CDs don’t offer the flexibility of easy access. In exchange for agreeing to lock your money up for an agreed period, banks and credit unions agree to pay a set yield for the length of the CD term, typically three months to five years.

No matter what term you choose, you can use Bankrate’s CD calculator to see just how much interest you’ll earn.

When money market accounts are a better fit

A money market account is a good way to grow your savings, but it’s not the best fit for everyone. Here are two situations when a money market account makes sense:

You want easy access to your funds

A money market account allows you to spend or transfer funds a few times each month or statement period. Though monthly transaction limits typically apply, most consumers will find it’s possible to work within those guidelines to cover any emergency expenses.

A money market account is a better choice than a CD if you’re looking for someplace to stash an emergency fund and may need immediate access to it. CDs are subject to an early withdrawal penalty, should you decide to take funds out of a CD before its term ends.

You’re looking for a short-term boost to savings

Money market accounts often offer competitive interest rates and provide a better return than a traditional savings account, for example. A higher APY can go a long way toward helping you achieve a short-term savings goal, such as a vacation, wedding or new computer. With a money market account, you’re able to grow your savings more quickly without risking any principal while still maintaining easy access to your funds.

When CDs are a better fit

CDs are a good choice for those looking to impose Here are two cases when a CD might be a good option:

You have a long-term plan for these funds

CDs, with their set terms, are an easy way to impose some financial discipline, since withdrawing money before the end of a term comes with a penalty.

When you open a CD, you are choosing to lock your funds away for a specified period. Depending on the term, it might range from a few months to several years. If you have a specific plan for these funds — and won’t need to tap them in an emergency —  then a CD might be a good fit.

If you plan to buy a house in five years, for example, then a CD could be the right place to stash a down payment, allowing you to take advantage of the most competitive interest rates while still providing access to the funds when you are ready to purchase your home. Plus, there’s no worry about losing money, unlike investing in stocks or other types of nonguaranteed investments.

You want these savings locked away

Saving money can be difficult. If you struggle to keep from spending your savings account, then a CD could be a good choice. The funds will be off limits for the entire term, unless you’re willing to pay an early withdrawal penalty — incentive to keep from dipping into your savings to explore a last-minute sale at your favorite store. Plus, your savings will be growing through the term.

Where can you get a money market account or CD?

CDs and money market accounts are both popular account types, offered by many banks and credit unions. Check with your current financial institution; keeping all your accounts in one place can make managing your financial life easier.

If you’re looking for the highest possible rate, shop around and compare offers. Online banks, such as TIAA Bank or Quontic Bank, tend to offer better rates than their brick-and-mortar competition.

When to stick with a savings account

The benefit of a money market account is that it balances competitive rates on your savings with the flexibility of a checking account, but it often has higher minimum balance requirements than regular savings accounts. Like savings accounts, money market rates are subject to market changes.

A savings account is usually just as good as a money market account: It lets you save money and earn a competitive rate. In an emergency, money in a savings account can be withdrawn or transferred to a checking account where the funds can be accessed by check or debit card — just like a money market account. Savings accounts, however, don’t come with a checkbook.

A savings account is a better alternative to a CD if you think you may need access to your funds before the term ends. The early withdrawal penalty that comes with most CDs can be stiff and result in a loss of any interest earned and possibly principal, should the money be pulled out before the end of the term.

Bottom line

Whether you choose to open a money market account or a CD, it’s important to consider both rates and accessibility. It is a good idea to put your money to work in one of these low-risk options if you can’t risk losing any money. But make sure to determine your goals before making either choice.

Learn more:

Written by
René Bennett
Banking writer
René Bennett is a writer for Bankrate, reporting on banking products and personal finance.
Edited by
Wealth editor