When it comes to saving and investing your money, many options are available. Two popular choices are a money market account [MMA] and a certificate of deposit [CD]. Both offer the potential for a higher interest rate than a traditional savings account, but there are some key differences between the two. Choosing which account works best for you comes down to your financial situation and goals.
What is a Money Market Account?
A money market account is a type of savings account that typically offers a higher interest rate than a traditional savings account. The interest rates on money market accounts can fluctuate depending on market conditions, and funds are FDIC-insured up to $250,000 per depositor. MMAs require a higher initial deposit than a regular savings account, and some may require a minimum balance to avoid fees.
Money market accounts typically allow for limited withdrawals, making them more convenient than other savings accounts for people who need easy access to their funds. In addition, the account has no maturity date and is a good option for "emergency funds" that you can withdraw at any time with no penalty.
What is a CD?
A certificate of deposit [CD] is a type of savings account that requires you to deposit your money for a specific period, typically ranging from a few months to five years. In exchange for leaving your money in the account for that time, you'll receive a higher interest rate than you would with a regular savings account. In addition, CDs are FDIC-insured up to $250,000 per depositor, and they typically require a higher minimum deposit than other savings accounts.
If you decide to open a CD account, you can only withdraw your money once the selected amount of time has passed. If you withdraw your money before the end of the term, you may face penalties and lose some of your interest earnings.
Differences Between a Money Market Account and a Certificate of Deposit
The main differences between a money market account and a certificate of deposit come down to access to your money and the interest rates you can earn. Here are some key factors to consider:
Access to Funds: With an MMA, you'll have more access to your funds than you would with a CD. For example, you can write checks or make ATM withdrawals, although there may be limits on the number of transactions you can make in a month. With a CD, your money is locked in for a specific term, and you may face penalties if you need to withdraw it early.
Interest Rates: CDs typically offer higher interest rates than money market accounts, but the rates may vary depending on the length of the CD term. MMA interest rates may be lower than CDs, but they offer more flexibility with deposits and withdrawals.
Minimum Deposits: MMAs usually have lower minimum deposit requirements than CDs, making them more accessible to people who don't have much money to invest.
Which Account is Better for You?
Deciding which account is better for you depends on your financial goals and needs. Here are some scenarios where one account might be a better fit than the other:
If you need access to your money: A money market account might be a better option if you need to be able to access your funds quickly and easily. Money market accounts typically offer more flexibility for deposits and withdrawals, making them a good option for emergency savings or short-term goals.
If you can leave your money untouched for a set period of time: If you have a specific savings goal in mind and can afford to leave your money untouched for some time, a CD may be a better option. CDs typically offer higher interest rates than money market accounts, which can help you earn more on your savings over time.
If you have a small amount of money to invest: A money market account might be a better option if you don't have much money to put away. MMAs typically have lower minimum deposit requirements than CDs, making them more accessible to people who don't have a lot of extra funds.
Ultimately, choosing between the two depends on your financial goals, time horizon, and liquidity needs. But, no matter what you decide, you get guaranteed returns with us. So check out our CD and MMA options today!