Savings accounts have long been a popular choice for rainy day funds. However, money market accounts and certificates of deposit (CDs) offer opportunities for you to grow your savings with higher interest rates.  

Use the guide below to explore the differences between money market accounts and CDs to determine which one is the right savings method for you. Choosing between them usually comes down to access, interest rate stability, and how soon you may need the money.

What is a money market account?

A money market account combines features of a checking account and a savings account, and typically offers competitive interest rates. Also referred to as a money market savings account or money market deposit account, these accounts allow you to deposit and withdraw funds, although you may be subject to a withdrawal limit. Note that money market accounts are separate from money market funds. 

Key features

Money market accounts feature variable interest rates, which means the interest rate can change over time. They can also offer debit card and check-writing capabilities. While you can access your funds as you please, you may be limited to six withdrawals per statement period, similar to a traditional savings account. Money market accounts also typically have larger minimum balance requirements than regular savings accounts.

Pros:

• Often offer higher interest rates than traditional savings accounts
• May provide tiered rates, with higher rates for higher balances
• Allow you to write checks or use a debit card 
• FDIC insured up to $250,000 per account

Cons:

• Monthly maintenance fees may apply 
• Higher minimum balance requirements than traditional savings accounts 
• Variable interest rates can change with the market
• May have limited withdrawals per statement period
• Fees may apply if your balance falls below a certain amount

What is a certificate of deposit?

A certificate of deposit, or CD, is a type of deposit account that earns interest over a set period of time. The date at which you are allowed to withdraw is known as the maturity date. The length of time you must keep your deposit within the CD is known as the term and can range from 30 days to 10 years or longer. Generally, longer terms tend to carry higher interest rates. Some CDs reward larger deposit amounts with higher rates. 

Many savers use a strategy called CD laddering. This means opening several CDs with different maturity dates to retain short-term liquidity on their deposits while building their savings up over time. For example, you might open CDs that mature once a year. When each one matures, you can withdraw the money or reinvest it. This way, you can keep access to some of your funds while still earning interest.

Key features:

Unlike other types of savings accounts, CDs do not allow you to access your deposited funds until the maturity date. Should you decide to take out your funds early, you’ll pay an early withdrawal penalty.

CDs typically offer fixed interest rates. This means your rate will not change during the term. These rates are often higher than those of money market accounts. 

Pros:

• Fixed interest rates make it easy to estimate your earnings
• Interest rates tend to be higher than those of money market accounts
• Flexible term lengths available
• No maintenance fees generally
• FDIC insured up to $250,000 per account

Cons:

• Early withdrawals usually incur penalties
• Limited access to your money during the term
• Higher balances or longer terms are required for higher rates
• Minimum opening deposits can be higher than for money market accounts

In short, money market accounts prioritize access to your cash, while CDs prioritize higher, guaranteed returns over time.

Money market accounts vs. CDs: Which is right for you?

Selecting between money market accounts and CDs depends on your liquidity needs, desired interest rates, and financial goals. The FDIC insures both money market accounts and CDs up to $250,000 per account, giving you peace of mind either way.

If you don’t yet have an emergency fund, a money market account may be a good choice. It can help you: 

• Earn more interest than a traditional savings account
• Deposit and withdraw funds (within withdrawal limits, if applicable)
• Use features like debit cards, ATM access, and check writing

A CD may be an option if you already have an emergency fund and can set aside funds for a specific amount of time. In that case, a CD can help you:

• Earn more interest
• Lock in a higher interest rate
• Know exactly how much interest you will earn over the term

When choosing between a money market account and a CD, you need to think about how often you might need to access your funds and how either option best aligns with your short- and long-term savings goals. You may want to lock in rates now with a CD, especially if you think interest rates could decrease due to changing economic conditions. Or, you may earn slightly less in interest in exchange for quick access to your funds with a money market account. While you can open and maintain both a CD and a money market account simultaneously, one likely suits you better than the other depending on your situation.

Open a money market account or CD with Popular Bank today.

Money market accounts and CDs can help you reach your savings goals, but each offers its own advantages and disadvantages. View our current money market account rates and CD rates, and apply online. If you have any questions, please stop by one of our branch locations or contact our Customer Care Center. Let us help you explore which type of account is best for your financial needs, now and in the future.