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CDs vs. Money Market Accounts

If you’re comparing certificates of deposit to money market accounts, you may wonder where you can earn the most interest on your money. Learn what these accounts are, how they work and the pros and cons of using them.

Portrait of Lora Shinn

Lora Shinn
Published May 22, 2024 in: Budgeting

Read time: 8 minutes

Certificates of deposit and money market accounts an help you save money and earn interest — and rates have increased for both account types over the past several years.

Both are deposit accounts, but with some key differences. Let's review CDs and MMAs so you can decide which option is best for your money.

Takeaways: Certificates of Deposit vs. Money Market Accounts

  • CDs and MMAs are both types of deposit accounts offered by credit unions and banks. Both provide options to grow your savings over time.
  • CDs generally provide higher interest rates on average compared with MMAs, but you won't have access to your money in a CD until the maturity date.
  • MMA interest rates are typically higher than traditional savings accounts. Unlike CDs, their rates can fluctuate. MMAs offer more flexibility than CDs to withdraw funds.

CDs vs. MMAs: How They Work

Both MMAs and CDs can help you save money, but what sets MMAs and CDs apart from regular savings accounts is their extra "saving powers." But those powers differ a bit for each account type.

How CDs Work

You are required to deposit money in the account and leave it for a specified time. In exchange, you typically can earn a higher interest rate than a regular savings account. For a traditional CD, the interest rate is fixed for the whole term of the CD. If you take money out of the CD prior to the maturity date, you'll likely pay an early withdrawal penalty.

An illustration title "Traditional CD Example*" The diagram starts with $500 in principal and shows the money increasing over a 12-month term and maturing at 5% APY with $525 at the end, representing the principal plus interest.
With a traditional CD, you keep your principal in the account for the full term and it grows at a fixed rate until the CD reaches maturity at the end of the term.

How MMAs Work

You can deposit and withdraw money anytime similarly to checking accounts or savings accounts you might already use. MMAs tend to offer variable interest rates higher than a traditional savings account but lower than what you'd find with a CD.

An illustration of a Money Market Account Example. It shows a stack of money labeled $10,000 going into a container (to represent an account). The container is labeled with "% APY" and has three different size arrows going up. On the right side of the image, is an illustration of a check and debit card to represent access to funds.
With most money market accounts, you'll earn variable interest rates. Typically, you can deposit and withdraw money anytime.

4 Differences Between CDs and MMAs

Minimum Balance
Sometimes, but usually low if required
Fixed for the term
Everyday Access to Funds
ATM card, debit card or checks
Withdrawal Penalties
Not usually

1. Minimum Balance Requirements

You can usually open a CD with a very low minimum deposit at many financial institutions.

MMAs are designed to encourage larger savings amounts. Some MMAs have higher minimum balance requirements — for example, $5,000 or more — or you may need to maintain a high minimum to earn a higher interest rate.

2. Earning Interest

CDs often pay a higher interest rate than MMAs and most other savings options. Traditional CDs offer a fixed rate for the term, so you earn the same return even if rates go down.

An MMA's rate is often lower than a CD's but higher than a savings account. The rate is variable and can go up or down from month to month, or even multiple times a month.

Interest Rate Example: CDs vs. MMAs vs. Savings*

Here are the annual percentage yields of BECU accounts effective May 1, 2024. This example compares a 12-17-month CD, an MMA and a savings account. All accounts in this example have Member Advantage premium rates and a $10,000 balance. Check the account disclosure (PDF) for current rates.

BECU Accounts With Member Advantage and $10,000*
12-17-month CD
Savings account
Annual Percentage Yield (APY) as of May 1, 2024**
6.17% on the first $500,
0.50% on $9,500 (on balances over $500)

3. Access

When you put your funds in a CD, they are "locked up" — earning a higher rate because you promise not to withdraw funds for a set amount of time or until your CD reaches what's called "maturity." You may not be able to withdraw just a portion of your funds if you need that money now. Instead, you may have to close or "break" the CD.

An MMA offers you more access to your funds than a CD. For example, at BECU, you get check-writing and ATM card privileges with your MMA. Other institutions may also offer debit cards.

4. Penalties

If you close a CD before it reaches maturity, you will usually pay an early withdrawal penalty. The penalty is typically just a few months' worth of interest.

You may not pay a penalty at all with most MMAs, although some may set limits on withdrawals and transfers and penalize you if you exceed those limits.

Pros and Cons of CDs and MMAs

Pros Cons
  • Earns higher interest rates on average compared with MMAs and savings accounts.
  • Offered at competitive interest rates at most credit unions and banks.
  • Minimum deposit, if required, is usually low.
  • Money usually isn't accessible until the CD reaches maturity (without breaking the CD).
  • Early withdrawal penalty fees charged if you withdraw your funds before maturity.
  • You'll need to track the maturity date and decide whether to renew or close the CD.
  • Interest is usually taxable.
  • Earns higher interest rates on average compared with regular savings accounts.
  • You can withdraw some or all funds at once without penalty.
  • You may be given an ATM card or checks to spend money from your MMA — but you'll need to find out whether this is offered.
  • Interest rates are generally lower than a CD's rates. 
  • You may be required to maintain a minimum deposit amount.
  • Interest is usually taxable.

When to Choose an MMA Over a CD

An MMA may be a better fit for you than a CD if:

  • You want to deposit cash and withdraw funds whenever you wish. You don't want any restrictions on when you can put money in or take it out from your MMA.
  • You're okay with earning a lower APY. An MMA probably won't have the same rate as a CD but still earns some interest.
  • You want a variable interest rate. You think rates may go up.
  • You want easy access to your money. You want your funds available in the next few hours, days or months and don't want to take the chance on a CD's early withdrawal penalty.

When to Choose a CD Over an MMA

A CD may be a better fit for than an MMA if:

  • A higher APY is most important to you. You want the highest interest rate available.
  • You don't need immediate access to your money. Perhaps locking up your cash in a CD can help you avoid dipping into your funds if you're saving for a down payment or other goal.
  • You want a fixed interest rate and fixed term. You want to know exactly how much interest you'll earn over a specific term.
  • You find a CD that fits your goals well. Some CDs differ from the garden-variety term types. Some CDs allow you to add funds throughout the term, while others bump up over time in response to interest rate increases. Compare CDs to find out which is right for you.

Are MMAs and CDs Insured?

CDs and MMAs are insured by the National Credit Union Administration at insured credit unions and the Federal Deposit Insurance Corp. at insured banks. NCUA and FDIC typically cover up to $250,000 per person per financial institution. Look up the institution to ensure coverage, which helps protect your money if the bank or credit union fails.

How is a Savings Account Different from an MMA or a CD?

A savings account typically pays lower interest rates than a CD or an MMA, but your money is more accessible than it would be in a CD. An MMA usually has higher minimum deposit amounts than a CD, but it often comes with features to help you spend your money that don't usually come with a savings account — including an ATM card and checks. A CD usually pays the highest interest rates but has early withdrawal penalties.

What's the Difference Between a Money Market Account and a Money Market Fund?

Often confused with money market accounts, money market funds are increasingly popular mutual funds offered by brokerages, whereas money market accounts are deposit accounts offered by credit unions and banks. Speak with an investment professional for details about money market funds.

The Big Picture

When choosing between a CD and an MMA, consider the purpose of the account. A CD could be the best fit if you're saving for a long-term goal and can let your money sit untouched.

If you need money in an emergency, an MMA is a great idea for a rainy-day fund, as you can add or withdraw money anytime. An MMA can also help you keep your funds at the institution where you bank regularly for convenience and ease of spending and transfers.

Once you decide on the type of account you need, start comparing rates, requirements and benefits for your CD or MMA at different banks and credit unions. For example, if you want an MMA that allows you to write checks and pays a higher rate, seek out those benefits.

Remember, if approved, you can open as many of these accounts as you need, so you can have a CD at one institution and an MMA at another.

Next Steps: Set Goals and Review Your Account Balances

If you're trying to decide if a CD or MMA is the best account for your savings strategy, the good news is you've taken a solid first step by reading up on these account types.

Here are suggested next steps you can take:

  • Set goals with dates: Is your emergency fund in place? Are you saving for a vacation or car in the next few months or next year? Be sure you know what you want to do — and what you want your money to do for you — before you choose an account.
  • Review your balances: If you keep a balance above, say $10,000 in savings but find you regularly need access to those funds, then it might be time to research an MMA. If you saved up some money and you won't need access to cash for a while, then it might be time to research a CD.

*Where examples are used, the products, rates and returns are not guaranteed and are for educational purposes only. The information and examples are not advice and may not reflect the rates, products, or services currently available from BECU. BECU does not offer or guarantee products or rates in this article.

**Rates stated as Annual Percentage Yield (APY), effective 05/01/2024 and are subject to change. The APY is based on an assumption that interest will remain in the account until maturity. An early withdrawal penalty may apply. Fees will reduce earnings.

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized financial, tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation when making financial, legal, tax, investment, or any other business and professional decisions that affect you and/or your business.

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Portrait of Lora Shinn

Lora Shinn

Lora specializes in personal finance topics for BECU, and has also written for regional and national publications such as The Balance, U.S. News and World Report, LendingTree, GoodRx, CNN Money, Bankrate, The Seattle Times, Redbook and Assurance IQ.