Money market account vs. CD
Money market accounts and certificates of deposit (CDs) both offer high interest rates on deposits, and they're both available through banks and credit unions.
The key difference between them comes down to access. MMAs allow you to withdraw funds whenever you want, though they charge fees if you exceed your monthly transaction limits.
CDs charge you for withdrawing funds too early. Every CD has a term ranging from a few months to over five years -- or longer. If you withdraw your money before terms are up, you must pay penalties equivalent to one or more months of interest. You're also forced to withdraw all of your money at once. (You can't just take out part of it.)
You can set up a CD ladder to access funds more frequently. This strategy has you divide up your total deposit into equal chunks and put them into CD terms of varying lengths.
Long-term savings -- and cash you don't potentially need right away -- belong in CDs, not money market accounts. But money market accounts are the superior choice for short-term savings.
READ MORE: Best CD Rates
Is a money market account right for you?
Money market accounts combine market-beating interest rates on deposits with easy access. That makes them ideal places to stash short-term savings. You can withdraw money frequently -- generally up to six times per month -- and earn some interest on cash. The catch is that you must meet minimum deposits, especially to earn the best rates.
No-deposit alternatives exist. Some money market accounts require no initial deposit, but offer worse APYs. Another option is to put cash in high-yield savings accounts. These have fewer deposit and balance rules, and the best offer rates competitive with MMAs.
Looking for a safe, profitable place to plop long-term savings? Consider putting money into one or more CDs. These bank accounts are FDIC-insured and earn even higher rates than MMAs. The tradeoff is CDs are inflexible -- once you put money in a CD, you must leave all of it there for the entire term. Otherwise, you typically pay early withdrawal fees.
Ready to open an MMA? Check out our top picks for the best money market accounts to find the right one for you.