CD vs. Money Market Account: Difference, Similarities & How to Choose

Money market accounts and certificates of deposit (CDs) both earn higher rates of interest than regular savings accounts, making them a great choice for building up your savings. Plus, both are insured by either the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Association (NCUA) for $250,000 per depositor, so you know your money is safe. However, they operate differently. It’s important to understand their shared features as well as their differences to determine which account is the best fit for achieving your financial goals. 

Money market vs. CD: similarities & differences

Interest rates

Both money market accounts and CDs typically earn higher interest rates than regular savings accounts. According to the FDIC as of 7/17/23, the money market rate was 0.63%, while the CD rate started at 0.20% for a one-month CD and went up to 1.37% for a 60-month CD. The best CD rates are available on long-term CDs, but you don’t have to commit to an extensive term to earn a good interest rate. Bump that CD up to a three-month CD, and the rate rose dramatically to 1.11%. In comparison, the savings account rate was 0.42%. As such, when choosing either a MMA or a CD, you could expect to see a better boost to your savings than when choosing a standard savings account. 

It’s important to note that interest rates on money market accounts can change, so your interest earnings can increase or decrease accordingly. With a CD, the interest rate is fixed for the entire term of the CD, so you are guaranteed to earn the same amount of interest through the CD’s maturity date. 

Minimum opening deposit 

Whether with a money market account or a CD, some financial institutions require a minimum amount to open the account. These could range from $100 to $1000 or more. For example, Quontic Bank offers CDs with a minimum deposit of $500. There also are financial institutions that will open an account or offer a CD with no minimum deposit. Shop around to find out which banks or credit unions offer the best MMA or CD without a minimum deposit. 

APY*	3.00%	Up to 4.70%	5.05%
Term	6 months	3 months to 10 years	6 months
Min. deposit	$1,000	$2,500	$500
	View Offer	View Offer	View Offer

Minimum balance requirements 

With CDs, there are no minimum balance requirements once the CD is purchased. That’s because a CD is a fixed amount and does not fluctuate during the term of the CD. However, with a money market account, the balance can decrease when withdrawals are made. Therefore, it could drop below the minimum balance requirements set by the financial institution, resulting in fees.

Access to funds 

With a CD, there is no regular access to the funds until the maturity date, or end of term. If you do withdraw money early, it will incur a penalty fee. Similar to checking accounts, you can withdraw funds from a money market account through several options, such as debit card, check, ATM card, electronic transfer or in person. The financial institution may limit withdrawals to a set number per month. (However, Regulation D, which formerly mandated such limits, was suspended in 2020.)

Fees 

Fees for money market accounts could include monthly maintenance fees, as well as fees for exceeding the maximum number of withdrawals or dropping below the minimum balance requirements. Fees for CDs typically are limited to penalty fees for early withdrawals. Shopping around is the best way to find money market accounts or CDs with the lowest—or no—fees. For instance, CIT Bank offers a money market account with no monthly fees.

When to choose a MMA

Money market accounts are ideal for people who want to earn a high interest rate on their savings, but want to have ready access to those funds when needed. They can be a great place to save for big purchases and expenses, such as college tuition, a wedding or home improvements. MMAs also are good tools in a diversified portfolio to help build wealth without making large or risky investments.

When to choose a CD

Putting money in a certificate of deposit is a great way to earn increased interest on your savings, especially compared to a regular savings account. Plus, many financial institutions offer CDs with term lengths from one month to five years, so you can choose the term that works best for you. The longer the term, the higher the interest rate you generally will receive. A CD can be the best choice if you have funds you can set aside. 

Alternatives to MMA or CD accounts

While a money market account or CD can be great tools for saving money, there are other options available for your savings. 

High-Yield Savings Account (HYSA)

A high-yield savings account is very similar to a money market account. Both earn interest rates higher than those with a standard savings account. Both are often available with no minimum deposit or balance requirements as well as no monthly maintenance fees. And both offer access to your funds when needed. However, while access to a MMA could include a debit card or checks, access to a HYSA usually is limited to an ATM card or in-person withdrawal. Though Regulation D is no longer in force, the rules of the financial institution may make withdrawals for a HYSA more restrictive than for a MMA. Exceeding those withdrawal limits could result in costly fees.

APY*	5.05%	4.25%	4.50%
Min. deposit	$100	$0	$100

401(k) 

A 401(k) is an employer-sponsored retirement account that could be funded through employee contributions as well as matching contributions from the employer. Funds contributed to a traditional 401(k) reduce your taxable income now. However, funds in a 401(k) are earmarked for future use; withdrawing them early (younger than age 59½) will incur hefty penalty fees. In addition, many 401(k) plans invest your contributions in mutual funds, which are not insured by the FDIC or NCUA. There are some self-directed 401(k) plans where the account holder decides what to invest in, and those could be insured by the FDIC or NCUA. 

Individual Retirement Account (IRA)

An IRA is a retirement account you can set up without going through your employer. Depending on which type of IRA you choose—traditional or Roth—you can build your savings on either a tax-deferred or tax-free basis. You also can choose what you invest in for the account; choices include stocks, bonds, CDs and other (but not all) investments. If they are held in a financial institution insured by the FDIC or NCUA , IRAs may be covered, provided you are the one who chooses how the money is invested. Again, IRAs are designed to build savings for retirement, so there are hefty penalty fees if you withdraw money early.

Learn more: Best Roth IRA Accounts 2023

TIME Stamp: Look at access vs. earnings when choosing between a CD and a MMA

If you’re looking for a way to earn a good return on your savings, money market accounts and CDs are good choices because both earn higher interest rates than regular savings accounts. While MMAs offer ready access to your money, a CD is ideal for money you can set aside for a specific time period. Also, interest rates fluctuate with a money market account, which could affect how much you earn, while a CD earns a fixed rate of interest so you know what your total earnings will be at the maturity rate. Both options can help you achieve your financial goals. It’s just a matter of evaluating your current and future financial goals to see which one will help you reach those goals.