Money Market Accounts vs. CDs: Understanding the Differences

What we’ll cover:

• Typically, CDs and money market accounts both offer higher APYs than what you’d get with a traditional savings account, but come with different benefits and rules 
• With CDs, you generally need to leave your money in the account for a fixed period of time
• Money market accounts allow you to add and withdraw funds

If you come across CDs and money market accounts while exploring ways you could earn a little more interest for your cash savings, but aren’t sure which option could be a better fit, you can now strike “compare CDs vs. money market accounts” from your to-do list. We’ve done the legwork for you.  

What’s a CD?

A certificate of deposit is a type of deposit account that typically offers a higher APY (annual percentage yield) than a traditional savings account. The catch is that you have to keep your money in the account for a fixed amount of time. Break the CD before your term is up, and in most cases, you could cough up an early withdrawal penalty.

We’ve got a brief rundown on CDs below, but if you’re looking for more in-depth material, check out our Guide to CDs. And if CDs are something that appeal to you, Marcus offers both high-yield certificates of deposit and a no-penalty certificate of deposit.

Here’s a quick rundown on what we found with many CDs:

• Benefits: Typically comes with a fixed interest rate at a higher APY compared to traditional savings accounts
• Minimum balance: Commonly ranging from $500 to $25,000
• Can you add money? Usually there’s a funding window and then the balance is locked
• Withdrawals allowed? In most cases, exit early, pay an early withdrawal penalty 

What’s a Money Market Account?

There are two types of money markets you may have read about: money market accounts (offered by banks and credit unions) and money market funds (offered by brokerage firms). Similar names, different rules. We’re focusing on the bank account option  – money market accounts.

Money market accounts offer APYs that are generally lower than ones you’d find with certificates of deposit, but money market accounts offer access typical CDs don’t: You can add money on a regular basis and may be able to withdraw funds with a debit card and/or checks along with digital transfers. Bank regulations limit these types of withdrawals, among others, to six total per month, but this limit may not apply to in-person withdrawals.

Here’s a quick rundown on what we found with many money market accounts:

• Benefits: A higher interest rate (APY) than what you’d get with a traditional savings account (but typically not as high as the APY on CDs), variable rate (meaning it’s not a fixed interest rate like with CDs)
• Minimum balance: Varies; higher balances can be linked to higher APYs 
• Can you add money? Yes
• Withdrawals allowed? Yes, but expect an overall limit on certain types of withdrawals per month
• Fees: You could be charged fees, including for dropping below the minimum and/or exceeding withdrawal limits

Money Market Accounts vs. CDs – what are they good for?

Now that the basics of these types of accounts are out of the way, we can dig into what probably qualifies as an existential question in banking – why these accounts exist.

CDs and money market accounts could add oomph to your savings because they offer ways to get higher interest rates than you would with a traditional savings account along with FDIC insurance protection. But how you could use them to your advantage depends on what you need from the money you’re looking to deposit. 

A fixed-rate certificate of deposit could help you save for a longer-term or time-bound goal, like a down payment on a house, because you can just leave the money in the account and wait until the CD matures to remove the cash. 

If you’ve got money you may need at a moment’s notice but can generally leave it in the account, a money market account could be an option for those potential short-term goals. The relatively easy access could be helpful if you’re building something like an emergency fund or just want the ability to deposit funds on a regular basis.

CDs vs Money Market Accounts

Bonus: When it might make sense to choose a savings account instead

If neither a money market account nor a CD seems to be the right match for your needs, you might want to consider a savings account instead. One advantage of savings accounts over money market accounts or CDs can be the liquidity. You can usually take your money out of a savings account without any penalties or additional fees, such an early withdrawal penalty. Of course, that convenience comes without the advantage of often higher interest rates of the other products.

A savings account might also be a good option for you if you’re concerned about the balance requirements of money market accounts and CDs. Savings accounts typically have the lowest opening and ongoing balance requirements of those three products.