Money market account vs. CD: Which one should you choose?

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Money market accounts and CDs are two ways to earn interest while keeping your savings safe.

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Money market accounts and certificates of deposit (CDs) both earn interest on cash deposits and are insured by the federal government. Although they share those similarities, they serve different purposes. Depending on your savings goals, one may be a better choice than the other.

Money market accounts and certificates of deposit (CDs) offer a safe way to earn higher interest rates than a standard savings account. Both accounts are insured—by the Federal Deposit Insurance Corporation (FDIC) at banks, or National Credit Union Administration (NCUA) at credit unions—for up to $250,000 per depositor, providing account holders peace of mind that their funds are protected.

Money market accounts let you deposit money and access it at any time. You can even write checks from the account or withdraw cash with an ATM card. In contrast, CDs are fixed-term accounts that lock up your funds for a while in exchange for a better interest rate. CDs make it harder to access your money than a money market account, although you might earn a better rate.

A money market account is a bank account that offers higher interest rates on deposits. You can open a money market account through most banks or credit unions, and many charge no monthly maintenance fees.

Money market accounts typically offer check-writing privileges and may come with an ATM card that allows you to withdraw cash, check account balances, and make deposits.

Some money market accounts limit the number of transfers or withdrawals you can make each month and charge a fee if you exceed those limits. These limits are based on a previous federal regulation. Although the regulation was amended in 2020 to remove transaction limits, some banks still charge fees above a set maximum.

Money market accounts may come with a high minimum deposit requirement to open an account and/or high minimum balance requirements to earn the best interest rate.

A certificate of deposit (CD) is a timed deposit account that typically pays a better interest rate for locking up your money for a set period. Most banks and credit unions offer CDs, with terms typically ranging from three months to five years or more.

CDs allow you to deposit a set amount and earn interest on the funds until the maturity date (when your money becomes accessible without penalty). Longer-term CDs often offer higher interest rates, although that’s not always the case.

Although funds are locked into a CD until maturity, it’s still possible to access your money—you’ll just pay for the privilege. Most CDs impose an early withdrawal penalty for accessing funds before the maturity date. The penalty could be several months of earned interest or more.

There are no-penalty CDs that charge no fee for accessing your money before the term ends, but they typically feature lower rates than standard CDs.

Money market accounts are ideal for depositing money when you want to earn a better interest rate—but also have easy access. If you’re saving for a home or other large purchase, or simply want to stash cash for your emergency fund, a money market account offers a safe and secure way to earn interest on that money.

CDs are less accessible, but they’re just as safe and may pay higher rates than standard savings accounts. CDs make sense if you don’t mind locking your money away for a set term. Most come with a penalty for withdrawing your money before the term ends, but that fee can also be a form of self-discipline to help you save. Don’t want to pay a penalty? Leave the account alone until it matures.

Money market accounts and CDs both provide a safe place to keep cash while earning interest. If you need regular access to your money, a money market account may be the better choice. If you can leave your money untouched for a fixed period, a CD may offer a higher interest rate than a money market account. Your choice likely hinges on your savings goals.

Interest rates on money market accounts often change over time in response to the Federal Reserve’s benchmark federal funds rate, while CD rates are generally fixed for the term. Comparing rates at several banks and credit unions can help you find the best rate regardless of the type of account you choose.