Money Market Accounts, Savings Accounts and CDs: Which one is the best?

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Savings, money market and certificates of deposit (CD) accounts have a few things in common — they’re relatively safe places to save your money and earn some interest. There are some key differences among them, however, including how much they cost, how they limit withdrawals and how much you can earn over time. Here’s a breakdown of these different accounts, how they differ from one another and how to choose the right one for you.

What is a money market account?

A money market account, or MMA, is a savings account that earns interest based on how much is in the account. In some ways, a money market account is like checking and savings rolled into one: You get a debit card and checks that let you spend and withdraw while you build interest. 

Note: A money market account is an interest-bearing deposit account. A money market fund is an investment account

Pros:

  • Easy access. You can use your card as you would a regular debit card or withdraw cash through an ATM. 
  • Higher interest payouts. The best money market accounts may pay out a higher interest rate than the best high-yield savings accounts and considerably more than the average savings account.
  • Insured by the FDIC or NCUA. Money market accounts are available at banks that are insured by the Federal Deposit Insurance Corporation (FDIC) and at credit unions insured by the National Credit Union Administration (NCUA). That means your money — up to $250,000 — is protected and you won’t lose it if, for example, the insured bank or credit union declares bankruptcy. (Money market funds, however, aren’t insured by either the FDIC or NCUA.)

Cons:

  • Limited withdrawals. Money market accounts may have withdrawal limits. Under the excessive transaction rule known as Regulation D, most savings accounts are technically restricted to six withdrawals per month (which extends to overdraft protection transactions, payments to third parties, electronic and telephone transfers, and ACH withdrawals). In 2020, Regulation D was suspended and some banks have eliminated these limits on withdrawals; there are banks that continue to charge fees for exceeding withdrawal limits, however. 
  • Higher minimum balance requirement. Some banks may require you to maintain a higher minimum balance compared to other types of accounts.  

Best for: Those who want to earn a higher rate of interest and won’t need to make more than six withdrawals per month.

What is a savings account?

A savings account strikes the balance between security, access and cost. These accounts typically pay a significantly lower amount of interest, though the best high-yield accounts may offer higher rates.

Pros:

  • No risk of negative return. While your interest rate may vary, you won’t lose money on your deposit.
  • Your money is protected. Like money market accounts, savings accounts are insured (by the FDIC at banks and the NCUA at credit unions) up to $250,000.
  • A low-maintenance place to stash your cash. Whether you’re building an emergency fund, reserving funds for a down payment or keeping money for a rainy day, a savings account offers simplicity and security.

Cons:

  • Limited access. A savings account serves one function — saving money. If you need to use the funds, you’ll need to transfer it to a checking account or make a withdrawal first.
  • Withdrawal restrictions. As noted above, Regulation D technically restricts most savings accounts to six withdrawals per month, though some banks has suspended enforcement of this rule. 
  • Lower APY. Some banks offer very low interest rates on savings account deposits, though the best high-yielding savings accounts currently offer annual percentage yields that may be on par with money market accounts.

 Best for: Those looking to safely store cash for the long-term.

What is a CD?

A certificate of deposit, or CD, is a fixed-interest savings account that restricts access for a set amount of time, from a couple of months to five years or more. Usually, the longer the time, the higher the interest rate you earn. While other accounts let you add money at any time, a CD requires one initial deposit.

Pros:

  • Higher interest rate. Compared to other types of savings accounts, CDs may offer higher interest rates. 
  • Fixed interest rate. Once you open a CD, the interest rate won’t change. That means your deposit is protected from a downturn in interest rates.
  • Predictable. Because you’re depositing a set amount with a fixed interest rate, you’ll know exactly how much money you’ll earn at the end of your term. A 1-year CD with a 2% APY on a $1,000 deposit will net you $20 in interest after one year.

Cons:

  • Minimum deposits. Most CDs require a larger initial deposit than a savings account or money market account.
  • Less flexibility. Once the money goes into your account, you can’t withdraw from it. If you need to withdraw early, you will forfeit some of your interest in penalties.
  • Rates might increase. If you open a CD and rates climb, you’ll miss out on the benefits. Because you’re locked in for a set amount of time, you’re stuck with your fixed interest rate until your term ends. 

Best for: Those who want to save money and protect against future interest rate drops.

Which is better, a money market account or a CD?

A CD may offer a higher interest rate compared to a money market account, but it’s far less flexible. You can’t spend the money in a CD, where funds in a money market account can typically be used with a debit card or check. 

Which is better, a money market account or a savings account?

Money market and savings accounts are similar, but a money market account makes spending easier. Although an MMA typically offers a higher interest rate than a traditional savings account, it also tends to have a higher minimum balance requirement than a savings account.

As long as you’re comfortable with limited access to your funds, a money market account will likely offer the higher interest rate. But if you anticipate making more frequent withdrawals, a high-yield savings account may be a better fit. 

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