Money Market vs. CD: What's Better? - NerdWallet (2024)

FAQs

Is it better to put money in a CD or money market? ›

In short, CDs can be the right pick for medium- or longer-term savings goals when you know you won't need the money for a set period of time. If you want to maintain easy access to your cash, go for a money market account.

Money market accounts are savings accounts that often offer higher interest rates than regular savings accounts and often incorporate checking account features, like easy access to cash. Yet they can also have downsides: Many have minimum balance requirements and excessive fees.

The cons of CDs

With a savings account, the money is easily accessible in case of a financial emergency or a change in spending priorities. With CDs, you typically can't withdraw the money whenever you want—at least not without paying a penalty.

Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.

I suggest a Money Market account with no penalties and full check-writing privileges for your emergency fund. We have a large emergency fund for our household in a mutual-fund company Money Market account.

Since money market accounts are insured by the FDIC or the NCUA, you cannot lose the money you contribute to the account—even in the event of a bank failure. You can, however, be subject to fees and penalties that reduce your earnings.

Key takeaways

They may come with the ability to pay bills, write checks and make debit card purchases. Disadvantages of money market accounts may include hefty minimum balance requirements and monthly fees — and you might be able to find better yields with other deposit accounts.

Cons. Limited withdrawals: Unlike a checking account, which doesn't limit any types of transactions, money market accounts typically have restrictions. You can't usually write unlimited checks or make unlimited electronic transfers.

As of September 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions offer high-interest checking accounts: Landmark Credit Union Premium Checking with a 7.50% APY and OnPath Credit Union High Yield Checking with a 7.00% APY.

How much will $50,000 make in a money market account? ›

Money Market Account

Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.

Higher Interest Rates Compared To Other Savings Options

CDs typically offer higher interest rates compared to regular savings or money market accounts. Generally, the longer a CD's term, the more interest it pays, helping offset the loss of liquidity.

Ramsey, on the other hand, has described CDs as nothing more than "glorified savings accounts," and says CD returns are typically too low to make the investment worth bothering with. He suggests putting your money into a mutual fund instead of a CD.

Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.

Banks and credit unions often charge an early withdrawal penalty for taking funds from a CD ahead of its maturity date. This penalty can be a flat fee or a percentage of the interest earned. In some cases, it could even be all the interest earned, negating your efforts to use a CD for savings.

Is it worth putting money into a CD? For some people, it can be worth putting money into a CD. If a person is seeking a riskless investment with a modest return, CDs are a good bet—you'll earn a higher rate than you would with a checking or savings account, but you'll have to commit your funds for a fixed period.

Money market accounts are safe. Since they're deposit accounts, they qualify for FDIC insurance. They also typically pay an interest rate your financial institution guarantees. Your balance will grow over time and can't lose value, unlike an investment.