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Evaluating a money market vs. CD for your savings goals

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Money market accounts (MMAs) and certificates of deposit (CDs) both provide safe ways to grow your savings by earning interest over time. Although each can serve a similar purpose, they work in slightly different ways. Depending on your future financial goals and what you want for your savings, those differences can matter greatly.

Here's an overview of money market vs. CD features so you can decide if one—or a combination of both—may be best for your savings.

Money market accounts are liquid savings vehicles

Money market accounts are interest-bearing accounts that share similarities with checking and savings accounts. They pay a higher interest rate on your balance than ordinary checking accounts as well as most savings accounts, but they still allow you to access your money on a fairly regular basis.

  • MMAs don't have a fixed term. Like a savings account, you can make additional deposits at any time.
  • Your interest rate isn't fixed and fluctuates with the market rate.
  • Some MMAs offer checking features such as check writing, debit cards and ATM access.
  • Depending on the institution, the number of withdrawals you can take may be limited. The typical limit is six per month.
  • MMAs are secure. They're covered by Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance.

To avoid confusion, be aware that a money market account and a money market mutual fund aren't the same.

CDs pay fixed interest for a specific period

Certificates of deposit, or CDs, are a type of time-based deposit you can open at a credit union or bank. They typically pay a higher interest rate than checking, savings and money market accounts. However, they're also less liquid. You earn a fixed interest rate on a CD, and you receive that rate until the CD matures.

  • CDs have a fixed term. You generally can't access your money until your CD matures. If you withdraw your money before the maturity date, you typically have to pay an early withdrawal penalty and will earn less interest than holding the CD to term.
  • Maturity periods can range from as short as a few months to several years.
  • You normally can't deposit more money into a CD once you open it. If you want to save additional money, you have to open another CD with its own maturity date and interest rate.

Money market vs. CD: Similarities & differences

MMAs and CDs are both good savings vehicles. Choosing between them is a matter of comparing the features to see which best addresses your needs. There are a few factors to consider—like when do you plan to withdraw the money or how long can you set it aside to earn a potentially higher rate of interest.

Both provide secure savings

MMAs and CDs are both covered by FDIC insurance if you open one through a member bank or the National Credit Union Share Insurance Fund if you open one through an NCUA member credit union. Each provides a safe and secure way to grow your savings.

MMAs are more liquid than CDs

MMAs are liquid accounts that allow you to transfer funds, make withdrawals or write checks. CDs don't provide those functions. If you need to access your money regularly, an MMA might be a better choice. With a CD, you have to wait until the maturity date or pay a penalty if you need to make a withdrawal.

Interest rates can differ

CDs typically have higher interest rates than MMAs. You can view this as a trade-off between liquidity and yield. If you know you may not need your money for a certain period of time, a CD may be a better choice because you can earn more interest.

CDs allow you to lock in a rate

CDs pay a fixed rate until maturity. This allows you to lock in a rate that stays the same for the life of the security.

The interest rate you earn on an MMA is based on the "money market" interest rate. Money market securities are short-term debt instruments that mature in less than one year. As short-term interest rates fluctuate, so do MMA rates. This can make them less appealing when you need or want certainty.

Money market vs. CD: A comparison

Money market
Interest rate
Higher than regular checking accounts but lower than other savings vehicles
Higher than checking, savings and MMA accounts
Highly liquid; may limit number of transactions per month
You must generally wait until maturity to access your money
FDIC coverage
Fixed or variable rate
Varies with market interest rates
Fixed until maturity

Key takeaways: Which is right for you?

MMAs and CDs both have benefits and drawbacks to consider. Think about your plan for savings, and use the vehicle with the features that are most aligned with your personal preferences or priorities.

  • If you need regular access to your money or want the option in case you need it, a money market account may be a better choice. They're great vehicles for your emergency fund.
  • If your primary goal is to get the most interest on your savings, a CD may be the best option. For example, you could use a CD to save for a large purchase like a car you plan to buy in a few years.

Of course, you may have midterm financial goals but still want to set aside some savings for easy access. In that case, you may find that splitting your savings between an MMA and a CD is a wise way to take advantage of the best features of both.

Discussing your situation with a financial advisor can provide clarity. A Thrivent financial advisor can help you decide the best route to take based on your unique needs and preferences. Call today to get started.

CDs offer a fixed rate of return. The value of a CD is guaranteed up to $250,000 per depositor, per insured institution, per insured institution, by the Federal Deposit Insurance Corp. (FDIC). An investment in a money market fund is not insured or guaranteed by the FDIC or any other government agency. A money market fund seeks to maintain the value of $1.00 per share although you could lose money. The FDIC is an independent agency of the US government that protect the funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government.