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For Your Life Cameron Halcomb February 27, 2023

Money Market vs. CD: What’s the Difference?

Money Market vs. CD: What’s the Difference? 

There are many types of savings accounts, and it’s important to understand which one will fit your specific savings goals. Two options are money market accounts (MMAs) and certificates of deposit (CDs). While both are federally insured at financial institutions that are members of a federal deposit insurance agency, let’s look at what sets these savings accounts apart.

 
 
 
 
 
 

Money Market Account 
 
 
 
 

Certificate of Deposit 
 
 
 
 
  • Combines savings and checking features 
  • Tiered interest rate 
  • Limited check writing 
  • Available for immediate withdrawal 
  • Best used for short-term goals 
  • Minimum opening deposit 
  • Minimum daily balance 
 
 
  • Deposit with a set time period; can be short or long terms 
  • Fixed interest rate 
  • Potential penalties for early withdrawal 
  • Best used for long-term goals 
  • Minimum opening deposit 
  • Minimum daily balance 
 

Money Market Accounts 

What is it?
A money market account combines savings and checking features. Like a savings account, it pays interest, although the rate is typically a bit higher. As with a checking account, you can write checks on a money market account, although there may be a limit on the number of checks.
 
How does it work?
Money market accounts can be interest-bearing, meaning the money that’s deposited can grow over time with interest. MMA deposits are available for immediate withdrawal, providing financial flexibility for account holders.
 
Is it the right fit for me?
If you want to accelerate interest-earning through potentially higher-yielding rates and maintain liquidity, this type of savings account may be the right fit for you. 

Certificates of Deposit or CDs 

What is it?
This savings option is best if your funds can remain untouched for a longer period of time. A CD has a specific fixed term (from three months up to five years or longer), in which you can’t withdraw money without paying a penalty. The interest rate is fixed at the time of account opening.
 
How does it work?
A CD is a form of "time deposit.” You agree to make a deposit and keep your money in the bank for a pre-determined about of time. In return, you receive a higher interest rate from the bank. Typically, the rate you receive varies by the length of your term and designated balance tiers.
 
Is it the right fit for me?
If you’re looking to save securely and earn a set return on it, this type of savings account may be the right fit for you. 

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