Money Market vs. CD: How to Decide Where to Put Your Cash

If you have money sitting in a regular savings account, you’ve probably noticed the interest isn’t very exciting. Two popular options that can help you earn more without taking big risks are money market accounts and certificates of deposit (CDs).

Both are considered safe places to keep your savings, but they work differently. Choosing the right one depends on how soon you might need your money and how predictable you want your earnings to be.

Let’s break it down in plain English.

What Is a Certificate of Deposit (CD)?

A certificate of deposit, or CD, is a type of savings product offered by banks and credit unions. When you open a CD, you agree to leave your money in the account for a specific period called the term in exchange for a guaranteed interest rate.

Think of it like lending your money to the bank. In return, the bank promises to pay you interest.

Example

Imagine you deposit $5,000 into a 1-year CD with a 4.50% annual interest rate. You’ll know exactly how much interest you’ll earn by the end of the year. The rate won’t change, even if market rates drop.

However, if you withdraw the money before the term ends, you’ll usually have to pay a penalty.

What Is a Money Market Account?

A money market account is similar to a savings account, but it typically offers higher interest rates and more flexibility. You can deposit or withdraw money when needed, although there may be some limits on frequent withdrawals.

Unlike CDs, money market accounts don’t lock your money away for a fixed time.

Some money market accounts also allow you to:

• Write checks

• Use a debit card

• Pay bills directly

This makes them more convenient for everyday access compared to CDs.

Safety: Are CDs and Money Markets Protected?

Both CDs and money market accounts are generally very safe.

If they’re offered by an FDIC-insured bank, your money is protected up to $250,000 per depositor, per bank. This means even if the bank fails, your money is still safe within that limit.

However, there’s an important distinction:

• Money market accounts (bank accounts): FDIC-insured

• Money market funds (investment products): Not FDIC-insured and may lose value

Most beginners use money market accounts offered by banks, which are insured.

The Biggest Difference: Access vs. Certainty

The key difference between CDs and money market accounts comes down to two things:

CD Interest Rates: Fixed and Predictable

One of the biggest advantages of CDs is that the interest rate stays the same for the entire term.

This means:

• Your earnings are guaranteed

• You can calculate your return in advance

• You don’t have to worry about falling interest rates

This makes CDs ideal if you want stability and certainty.

Example

If interest rates drop next month, your CD still keeps the higher rate you locked in.

But there’s a downside: if interest rates rise, your CD rate stays the same, and you miss out on better returns.

Money Market Interest Rates: Flexible but Uncertain

Money market account rates can change at any time depending on market conditions.

This means:

• Your rate could increase if interest rates rise

• Your rate could decrease if rates fall

This flexibility can be good or bad, depending on the economic environment.

Example

If the Federal Reserve raises interest rates, your money market account may start paying more interest automatically.

When a CD Makes More Sense

A CD is usually the better choice if:

• You don’t need the money right away

• You want guaranteed returns

• You prefer stability over flexibility

• You are saving for a specific future goal

Real-life example

Suppose you’re saving $3,000 for a vacation next year. You know you won’t need the money until then. Putting it in a CD ensures steady growth without risk.

When a Money Market Account Is Better

A money market account is a better option if:

• You want easy access to your money

• You’re building an emergency fund

• You’re unsure when you’ll need the money

• You want flexibility

Real-life example

If you’re saving for emergencies like car repairs or medical bills, a money market account makes more sense because you can withdraw money anytime.

Pros and Cons of CDs

Pros

• Guaranteed interest rate

• Usually higher rates than savings accounts

• Very safe and predictable

Cons

• Early withdrawal penalties

• No benefit if interest rates rise

• Limited access to your money

Pros and Cons of Money Market Accounts

Pros

• Easy access to funds

• Flexible withdrawals

• Often higher rates than regular savings accounts

Cons

• Interest rates can change

• May require higher balance for best rates

Which Earns More: CD or Money Market?

It depends on the time period.

• Short-term CDs and money market accounts often have similar rates

• Long-term CDs usually offer higher rates

Banks reward you with higher rates for committing your money longer.

You Don’t Have to Choose Just One

Many smart savers use both.

Example strategy

Let’s say you have $10,000:

• Put $7,000 in a CD to earn a guaranteed higher rate

• Keep $3,000 in a money market account for emergencies

This gives you both growth and flexibility.

The Bottom Line

Both CDs and money market accounts are excellent low-risk ways to earn interest on your savings.

Choose a CD if:

• You want guaranteed returns

• You don’t need immediate access to your money

Choose a money market account if:

• You need flexibility

• You want easy access to your cash

If possible, using both can give you the best balance between safety, growth, and convenience.