When it comes to choosing an account for your savings, it ultimately depends on your financial goals and needs.
Here are some factors to consider when choosing between CDs and money market accounts.
Interest Rates
Both money market accounts and CDs offer the opportunity to earn a higher rate of interest than regular savings accounts, though CDs typically offer higher interest rates the longer you keep your cash in the account.
Initial deposit amounts
CDs tend to require higher initial deposit amounts, often in the four- to five-figure range. Money market accounts offer a variable interest rate that is higher than traditional savings accounts, but typically lower than CDs.
Liquidity
While both of these account types are great for earning interest in the short term, understanding how and when you'll use your cash will come in handy. That's because CDs tie up your money for a predetermined period of time, sometimes years.
Paying a penalty for withdrawal before the time is up can wipe out the interest you've accumulated. Though money market accounts offer a lower rate, you can withdraw money at any time (though some types are limited to six withdrawals per month). Plus, you get easier access, via checking-writing and a debit or ATM card.
Risk
CDs are low-risk investments, making them ideal for people who have a low tolerance for risk. Money market accounts have a higher risk than CDs since they invest in short-term debt securities. However, the risk is still low compared to other investment options.
Think of a money market account as a hybrid checking and savings account, offering you the potential of higher rates with easy access to your cash. Keep in mind that if your balance falls below a certain amount, your bank may charge you a monthly fee. CDs, on the other hand, don't have monthly fees.