Save more, spend smarter, and make your money go further Both money market accounts and certificates of deposit (CDs) enable your savings to generate interest. In general, money market accounts offer lower interest rates but more flexibility for withdrawing money. On the other hand, CDs tie your money up for a period of time, but they’ll likely provide a better interest rate. After you’ve started to save up some money, you’ll likely consider the many options for generating interest on your savings. Though you may have a traditional savings account, you might look to a money market account or a certificate of deposit (CD) as other choices that may suit your situation. But choosing between money market vs. CD can be tough. While both money market accounts and CDs have some similarities with traditional savings accounts, they often have higher interest rates. This means that your savings will grow faster over time, but it’s good to know both the advantages and disadvantages of these kinds of accounts. Read on to learn how to choose between a money market account and a CD as well as details about both of these account types. Choosing Between Money Market Account and CDWhen choosing a savings account like a money market account or a CD, it can be helpful to consider the similarities and differences. Additionally, it’s beneficial to think about your particular situation, including your short- and long-term needs. Use the following chart to help guide you toward a savings account that could work for you.
While that provides a high-level look at both money market accounts and CDs, it can also be useful to take a closer look at both of these account types. What Is a Money Market Account?A money market account is a type of savings account that earns interest over time. Like a traditional savings account, a money market account enables you to withdraw money up to six times per month. Some money market accounts even include debit cards for easy withdrawals. That said, the primary reason to choose a money market account is that it may have a higher interest rate than a traditional savings account. However, this higher interest rate often comes as a result of a required account balance, which can vary anywhere from $500 to $25,000 or more. Also, the interest rate for a money market account may change over time. Importantly, money market accounts are insured by the Federal Deposit Insurance Corporation (FDIC), which means that your money is backed by the federal government up to $250,000 if the financial institution holding your money were to fail. Here are the key points to remember when considering a money market account:
While money market accounts offer a flexible way to stash your savings, a CD may offer even higher interest rates — but with less flexibility. What Is a CD?A certificate of deposit (CD) is a type of savings account that requires a set deposit for a set period of time. Unlike a traditional savings account, you generally cannot make regular withdrawals from a CD without penalty. Instead, you’ll arrange to have your money returned to you with interest after a predetermined period of time — as short as a few months and up to five years or more. However, in exchange for a lack of flexibility, CDs often provide higher interest rates than money market accounts. Additionally, the interest rate for a CD is fixed, which means that you can anticipate exactly how much money you’ll make over time by investing in your CD. Your CD may require a minimum deposit — generally anywhere from $500 to $10,000 — but most CDs don’t have any account fees for their duration. That said, a CD generally involves a penalty for early withdrawals from the account, so you’ll want to be sure that you don’t need access to that money for the entire term. Like money market accounts, CDs are backed by the FDIC, which means that your investment will be protected by the federal government up to $250,000. Here is what you should keep in mind about CDs:
With all of this knowledge, you’re ready to think about whether a money market account or CD may be right for you. No matter which account you choose, you’ll be making an excellent decision to help your savings grow with interest over time. In addition to savings accounts, you’ll also want to consider tax-advantaged retirement accounts that allow for long-term saving and potentially larger returns over time. To continue your saving momentum — or to get started by committing to save each month — it’s important to track all of your accounts to keep a bird’s eye view of your financial picture. Once you’ve got a budget, you’re on the way to reaching your financial goals. Save more, spend smarter, and make your money go further Mint is passionate about helping you to achieve financial goals through education and with powerful tools, personalized insights, and much more. More from Mint Browse Related ArticlesAre Certificates of Deposit Worth It? (Pros and Cons of…Short-Term Investments to Consider in 2022How Do CDs Work?What to Do About Low Interest RatesFinancial Tools: Stash Your Cash At the Right PlacesWhere to Park Your CashWhat Is the Definition of a Savings Account?Alternatives to Traditional Savings AccountsWhat is a Money Market Account & How Does it Compa…Make the Most of Your CashWhat is an advantage of a CD over a saving account or money market?Higher Rates
Compared to savings accounts or money market accounts, CDs potentially can offer higher interest rates on deposits. That's because you agree to keep your money in the CD for a set time period. The interest rate and APY you earn depends on the bank, the CD term and the current interest rate environment.
Are CDs part of the money market?CDs are typically more stable than money market funds — not to be confused with money market accounts. Money market funds are a type of mutual fund investment that could lose value if the market falls. On the other hand, CDs have a fixed interest rate and are typically federally backed by the FDIC or NCUA.
What is the downside of a money market account?Money market investing can be very advantageous, especially if you need a short-term, relatively safe place to park cash. Some disadvantages are low returns, a loss of purchasing power, and that some money market investments are not FDIC insured.
What's the difference between a savings account a money market account and a CD?Savings accounts, money market accounts and CDs typically differ in terms of their interest rates, restrictions, benefits, fees and level of risk. Furthermore, a savings account or money market account may make sense for short-term savings, while a CD is better suited for longer-term savings needs.
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