Money market accounts vs CDs: What's the difference?

CDs and money market accounts are both interest-bearing accounts. But CDs have higher interest rates and place more restrictions on access to your cash.

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Money in a savings account earns more interest the longer you keep it there. In addition to the traditional savings account, many banks also offer a money market account or CD (certificate of deposit). These accounts are all insured by the FDIC (for banks) or NCUA (for credit unions).

A money market account is a type of savings account, although they typically require you to keep a much higher balance in them to avoid fees. Note that a money market account is not the same thing as a money market fund, which is the account you use to pay for investments like stocks and securities. Money market funds are not FDIC- or NCUA-insured.

A CD is the least liquid of all savings account options. When you put money into a CD, you must choose to keep it there for a period of months or even years, which is called the term or maturity period. Withdrawing your funds before the end of the term could result in a large fee, but in return for a choosing a longer term you’ll earn a higher interest rate.

FeatureCD (certificate of deposit)Money market account
Best forLong-term investmentLow-risk rainy-day fund
Withdrawal restrictionsLarge fees for withdrawal before maturitySix "convenient" transactions per month
Minimum balanceVaries by bank and CD productVaries by bank
FeesEarly withdrawal and wire transfer feesExcessive transaction, overdraft, wire transfer and international charge fees
Interest earned2.5% to 3.1%2.0% to 2.4%

Interest rates on money market accounts and CDs

Certificates of deposit typically have much higher interest rates than money market accounts and other types of savings accounts. In return, you’re expected to keep the funds in the CD for a much longer period of time, whereas with an MMA you can withdraw the funds when needed.

While MMAs may have once offered higher interest rates than regular savings accounts, that is no longer the case. In fact, many non-money market savings accounts, especially from online banks, have far higher interest rates when compared to money market accounts from the same bank.

Interest is expressed as the annual percentage yield, or APY, meaning that the interest rate is the amount you’ll receive after keeping a given deposit in the account for a full year.

The APY of a money market account may be variable, and your bank could adjust your interest rate either higher or lower depending on which way the market swings. For a guaranteed interest rate, you need a CD.

To get the best interest rates on a money market account, you typically need to keep a very high balance; many of the best interest rates aren’t available until you have at least $10,000 in your account. But for a CD, the balance is less important than the maturity period; the longest terms can earn as much as five times as much interest as the shortest terms.

Accessing the money in an money market account versus a CD

The ease with which you can access the money in an account is called liquidity. A checking account has the most liquidity], because there are virtually no restrictions to using your checking account funds – but checking accounts usually earn no interest. Savings accounts like money market accounts and CDs have less liquidity.

Learn more about the difference between checking accounts and savings accounts.

Accessing the funds in a money market account

With a savings account, you can make unlimited amounts of the following transactions:

  • Withdrawal at an ATM

  • Withdrawal in person at the bank

  • Withdrawal by mail or messenger

  • Withdrawal by telephone when your funds are delivered in the form of a check

However, your savings account only allows a maximum of six transactions every month for certain “convenient” transactions, with means the following:

  • Debit card and bank card transactions, except ATM withdrawals

  • Paying by check

  • Any preauthorized or automatic transactions

  • Transfers and withdrawals made online, by fax, or over the phone

Exceeding the six-per-month limit on the convenient transaction types could result in a fine, the amount of which depends on your bank. Keep in mind that many regular savings accounts do not allow you to write a check against them, but money market accounts typically do.

Accessing the funds in a CD

You can withdraw your money from a CD, but if the maturity period hasn’t completed yet then most banks and credit unions will charge you an early withdrawal fee (see below about how these fees are calculated). Depending on when you make the early withdrawal, the fee could completely wipe out any interest you’ve gained on the CD.

You’re free to withdraw the money from a CD at the end of the term. You can also roll the money over into a new CD, starting a new maturity period and adding the interest you earned over the last maturity period to the principal balance. That means you can earn interest on previous interest.

If you don’t withdraw the funds from your CD, eventually it will be automatically rolled into a new CD. You’ll be notified several weeks in advance by your bank or credit union when your CD is reaching maturity, and you’ll have a grace period after the CD reaches maturity during which you can decide how you want to proceed.

You can’t spend the funds in a CD like cash in a deposit account. If you choose to make an early withdrawal, you’ll have to withdraw the full amount.

Fees in money market accounts vs CDs

For the most part, money market accounts and CDs are free to use. But each bank may charge fees for usage that goes against the terms of the account.

Money market account fees

The fees on an MMA may include:

  • Excessive transactions fee, charged for every transaction beyond the six “convenient” transactions allowed per month.

  • Overdraft fees, which is charged when you make a transaction but don’t have enough money in your account to pay for it.

  • Stop payment request fee, for when you write a check and need to stop payment on it before it’s deposited or cashed.

  • Expedited delivery fee, charged when you order new checks or a new debit card and request expedited delivery.

  • Wire transfer fees, for when you send money over the wire.

  • International charge fees, which include currency conversion fees, charged when you make an international transaction using your account, calculated as a percentage of the transaction amount.

Certificate of deposit fees

One of the only fees with a CD is the early withdrawal penalty, which is equal to an amount of interest earned over a certain period of days. The longer the term, the more days of interest are charged as penalty.

Banks may waive the early withdrawal penalty on a CD if you pass away or if legally required to by the court.

You may also be charged fees for using your CD to make wire transfers.

No-penalty CDs

Some banks offer no-penalty CDs, meaning that you can withdraw the money from the account at any time after a period of days has elapsed. However, no-penalty CDs typically have a much lower APY than traditional CDs, and in many cases you might be better off with a savings account than a no-penalty CD.

Where to get a money market account or CD

Certificates of deposit are offered by virtually every bank and credit union. (Because credit unions are owned by their members, CDs there may be called “share certificates” instead.) You can simply walk into a branch and open up a CD, or even do it online. Note that once your CD is funded, you can’t add funds to it until after the maturity period has ended.

Money market accounts are no longer as common as they used to be, as many banks have effectively rolled their savings account options into a single savings account product. But CDs are still a very common and useful part of your financial plan.

Many banks now offer just three types of deposit accounts: checking, savings, and CDs. There are variations within each type of account, such as different interest rates or maturity periods, and banks may call these variations by different names.

When you're ready to open an account, you can use Fiona to compare savings accounts from all kinds of banks.