Money market accounts vs. CDs: Which is best for you

Vacation or staycation. Dine out or eat at home. Go to the movies or stream online. Life’s full of decisions when it comes to saving your hard-earned dollars, some easier than others. If you’re working toward a financial goal and are looking for new ways to grow your money, money market account vs. certificate of deposit (CD) may be a decision worth considering. After all, both types of savings vehicles offer many valuable features and benefits. Whether you’re looking for easy access to your funds or a fixed interest rate you can count on, the deposit products available from Discover let savvy savers find the best choices for their entire range of needs.

Discover’s CDs, for example, feature great rates with predictable returns, flexible terms and the opportunity to transfer interest to another Discover deposit account. With a Discover Money Market Account, you can enjoy competitive returns with regular access to your cash.¹

Peace of mind is priceless

Building your savings can be a rewarding accomplishment, but it often requires effort. Sometimes a lot of it. After all of your hard work, you want to feel confident that your money will be there when you need it most. If you’re thinking money market account vs. CD and open your account at a financial institution insured by the Federal Deposit Insurance Corporation (FDIC), your account will be insured up to the maximum allowed by law.

Money market vs. CD: Weighing the options

Money market account vs. CD really depends on why you’re saving and how you’d like to access your money. No matter your preference, you’ve got choices. Consider the three factors below when debating money market vs. CD:

Consider how interest rates can impact your savings

Money market: The interest rates on money market accounts can fluctuate depending on market conditions, but this type of account typically earns more interest than, say, a checking account. When considering money market account vs. CD, however, it’s important to remember that the yields from money markets may be considerably smaller than those from CDs. As the Federal Reserve raises rates, though, money market yields could rise. When shopping around and comparing interest rates, consider the annual percentage yield (APY), which takes compounding into account. The APY is a percentage rate reflecting the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a year.

CD: If you like the predictability that comes with a fixed interest rate and APY (both the interest rate and APY remain the same throughout your term), consider opening a CD. You’re likely to find a CD with a higher interest rate and APY than money market accounts and other savings vehicles. When debating money market vs. CD, consider that most financial institutions offer higher interest rates on CDs with longer terms.

Think about the cash access you need

Money market: Money market accounts work much like your traditional savings account. You deposit money and are able to withdraw cash, and the account has no maturity date. Typically, you can make withdrawals by writing a check, withdrawing from an ATM or transferring money online. Money market accounts do come with transaction limitations, though, so check in with your financial institution to make sure you understand your monthly limits.¹ If you’re thinking money market vs. CD, know that a money market account may be a good choice if you need access to your cash periodically, but on a less frequent basis than a checking account. If you need somewhere to park your emergency fund (cash to pay for unexpected expenses like auto or home repairs), a money market account may be the way to go.

CD: Certificates of deposit are sometimes referred to as ‘term accounts’ because a CD matures after a specified period of time (think three months to 10 years), which is when you receive the principal that was deposited along with your accrued interest. For instance, if you open a 5-year Discover CD with a $5,000 initial deposit and 2.25% APY, you’ll have earned interest of $589.75 when the CD matures.² If you withdraw funds or close the account prior to maturity, you’ll usually have to pay an early withdrawal penalty. For this reason, a CD may be a good option if you are certain that you will not need your savings prior to the account’s maturity. If you’re going back and forth on money market account vs. CD and are saving for a large, one-time expense (new set of wheels on your mind?), a CD might be just the savings vehicle for you.

Compare the features

Money market: Money market accounts may offer benefits like checkwriting and access to an ATM. With Discover’s Money Market Account, for example, you can access your funds online or by check, debit card or ATM (subject to certain monthly transaction limits).¹ You can even arrange for no-fee online money transfers and bill pay from your account. You can also make automatic transfers to your money market account from a checking or savings account.

CD: While money you deposit into a CD will stay put for the length of your term, there are other features you may want to consider when answering the money market vs. CD question. You may want to track down a financial institution that offers flexible terms so you can select one that aligns with your savings and financial goals. Flexible terms may also come in handy if you’re interested in creating a CD ladder, which is a series of CDs that are set to mature at regular intervals. You’ll also want to note a certificate of deposit’s minimum balance requirement so you know how much you’ll need in savings to open an account.

Decisions, decisions

As you consider money market vs. CD, ask yourself the following questions:

• What kinds of savings goals am I targeting?
• How soon will I need to access the money?
• Are checkwriting or ATM access important?
• Is there a minimum balance requirement?
• What are the fees associated with the account?
• Are there steps I can take to get a higher interest rate? If yes, are there trade-offs that I need to understand?

Discover

Discover Bank offers a full range of CDs and IRA CDs with terms from 3 months to 10 years, as well as Money Market and Online Savings Accounts. Open an account online or call our 24-hour U.S-based Customer Service at 1-800-347-7000.

The article and information provided herein are for informational purposes only and are not intended as a substitute for professional advice.

¹ Federal law limits certain types of withdrawals and transfers from savings and money market accounts to a combined total of 6 per calendar month per account. There are no limits on ATM withdrawals or official checks mailed to you. To get an account with an unlimited number of transactions, consider opening a Discover Cashback Debit account. If you go over these limitations on more than an occasional basis, your account may be closed. See Section 11 of the Deposit Account Agreement for more details.

² The accuracy of the values shown is not guaranteed by any party and is intended for educational purposes only. Rates are subject to change. The information displayed is not advice and it may not reflect actual products, services, rates and/or terms available from Discover Bank. Nothing contained in this example is an offer, solicitation or guarantee for any product or service that may be available from Discover Bank.