CDs or Money Market Accounts: Where Should You Keep Your Cash?

If you have extra cash and want to build your savings, you might consider putting your money into an account that pays you interest, such as a certificate of deposit (CD) or money market savings account. While either account could be a good addition to your financial plan, deciding which one to open will depend on your specific situation and savings goals. Learn more about CDs and money market accounts below.

Certificates of Deposit

A CD is a type of savings account where you “lock” in your funds for a set term period, ranging from a few months to several years, in return for a high interest rate. With a CD, you make a one-time deposit, and are not meant to withdraw your funds until your term ends (if you need to access your money early, you may pay a penalty). The key advantages of CDs include:

1. Fixed rates: CDs have a predetermined interest rate that is set for the entire term, which provides protection from market fluctuations.
2. Guaranteed returns: Your investment is insured by the FDIC (subject to FDIC insurance limits), and you’re guaranteed to receive the advertised interest rate upon the maturity of your CD term.
3. Disciplined saving: Because you may be penalized for accessing your money before your term period ends, CDs encourage disciplined saving by discouraging withdrawals.

Learn more about how CDs work.

Money Market Savings Accounts

A money market savings account is more similar to a regular checking or savings account, except that it pays you a higher interest rate in return for keeping a specific minimum balance. Key benefits of a money market savings account include:

1. Liquidity and flexibility: You can easily access the cash in your money market account. Some banks will issue checks or debit cards, in addition to transfers or in-branch withdrawals, to access your account. This offers greater flexibility compared to CDs, where you’re discouraged from accessing your money until your term ends.
2. Competitive yields: While not as high as some long-term investments, and typically not as high as CDs, money market accounts still provide competitive interest rates to help you build your savings.
3. Tiered interest rates: Many money market accounts offer tiered interest rates, which means that you could earn a higher yield for keeping a higher balance in your account.

How to decide which is right for you

If you’re trying to decide between a money market account or a CD for storing your extra cash, it can be helpful to know what you’re saving for, and how soon you think you may need your funds.

You could consider a CD if:

• You have a specific financial goal in mind, and can commit to a fixed term of several months or more.
• Stability and guaranteed returns are top priorities.
• You’re comfortable locking in your cash and not accessing it until the end of a specific term.

You could consider a money market account if:

• You want to be able to access your funds in case of emergencies or unexpected expenses.
• Competitive yields and flexibility are important for your financial plan.
• You want to maintain a balance between accessibility and earning interest.