Comparing Money Market Accounts, Savings Accounts, and Certificates of Deposit.

Money market accounts, savings accounts, and certificates of deposit (CDs) have the potential to enhance your savings by generating interest while also ensuring the safety of your funds.

Gaining a clear understanding of how these deposit accounts that accrue interest function, as well as the distinctions between them, can aid you in making an informed decision.

What is a money market account?

A money market account, an offering found at most financial institutions such as banks and credit unions, is a savings product that earns interest. It usually enables you to write checks and provides the possibility of having a debit card.

Previously, under the Federal Reserve's Regulation D, withdrawals from money market accounts were limited to six per month. However, the Fed suspended this restriction in April 2020, and it has yet to be reinstated. Consequently, it is no longer mandatory for banks to enforce this withdrawal limit. As a result, some banks have chosen to eliminate withdrawal limits entirely, while others, including major institutions like Bank of America and Chase, are still enforcing them.

Due to the Federal Reserve's recent interest rate hikes, yields on deposit accounts, including money market accounts, have experienced a significant increase within the past year. Consequently, there are now money market accounts available with yields comparable to those of savings accounts.

What is a savings account?

A savings account represents the most fundamental type of bank account specifically designed for the purpose of storing your savings.

Upon opening a savings account, it is typically mandatory to deposit a certain amount of money, although some banks have eliminated minimum deposit requirements. You have the ability to add to and withdraw money from this account as needed. However, unlike money market accounts, you will not be provided with a checkbook to access your funds. Instead, you must rely on online transfers or in-person withdrawals at the bank. In certain instances, if connected to a checking account, some banks may allow you to make ATM withdrawals using the associated debit card.

Similar to money market accounts, there used to be a limit on the number of withdrawals permitted from savings accounts, capped at six per statement period. While some banks are still adhering to this restriction, others have completely done away with it.

Exceeding the withdrawal limit often results in the imposition of a fee, emphasizing that these accounts are primarily intended for long-term storage of your funds rather than frequent transactions.

In return for entrusting your money to the bank, they will provide an interest payment into your savings account at regular intervals, thereby contributing to the growth of your account balance.

Certain banks might have minimum balance requirements or charge fees for maintaining a savings account. It is important to be aware of and monitor these fees, as they can diminish the value of your savings over time.

What is a CD?

A certificate of deposit (CD) is an account that allows you to save money for a predetermined period.

When establishing a CD, you must determine the amount of money you wish to deposit and the duration for which you intend to keep the funds within the account. For instance, you might opt for a one-year CD, although CD terms can range from a few months to five years or even longer.

Once the account has been opened, you are unable to withdraw your funds until the specified time period has elapsed. Should you choose to withdraw before the maturity date, you will typically face a penalty fee. In exchange for this reduced flexibility, banks generally offer higher interest rates for CDs compared to other types of accounts.

Comparison between Money Market Accounts and CDs

When it comes to comparing money market accounts and certificates of deposit (CDs), there are several key differences to consider.

Money market accounts have certain features that set them apart from CDs. For instance, money market accounts offer the convenience of checking account features. This means you can write checks and may even have access to a debit card. On the other hand, CDs are known as time-deposit accounts and do not offer such features.

In terms of returns, money market accounts generally offer lower interest rates compared to CDs. This is because CDs require you to keep your funds deposited for a specific period of time. On the other hand, money market accounts require a higher balance to earn the highest annual percentage yield (APY), but they allow for easier access to your money upfront.

Comparison between Money Market Accounts and Savings Accounts

Money market accounts and savings accounts differ primarily in terms of flexibility and fee structures.

While savings accounts are relatively flexible, they typically do not come with checkbooks or debit cards like money market accounts do. Money market accounts are designed specifically to provide easy access to funds. In contrast, savings accounts require additional steps to access and spend your money.

Another notable difference is the ease and cost of opening these accounts. Savings accounts generally have low or no minimum balance requirements and low fees. In contrast, money market accounts often require higher minimum balances and may have monthly fees. This makes money market accounts more appealing to individuals with larger balances who desire flexibility for making substantial purchases.

Advantages and Disadvantages of Money Market Accounts, Savings Accounts, and CDs

To better understand the pros and cons of these financial products, it is important to examine their advantages and disadvantages.

Advantages of Money Market Accounts

- Higher interest rates compared to interest checking accounts and many savings accounts offered by major banks.

- Accessible funds with the ability to write checks, make electronic transfers, and potentially use a debit card.

- Provides a safe place for your money, as it is protected by federal insurance.

Disadvantages of Money Market Accounts

- Limited withdrawals, including restrictions on check-writing and electronic transfers.

- Higher account minimums compared to savings accounts and CDs.

- Potential monthly fees if the account minimum requirements are not met.

Advantages of Savings Accounts

- Provides a safe place for your money with insurance from the Federal Deposit Insurance Corp. (FDIC) and National Credit Union Administration (NCUA).

- Offers low fees and minimum balance requirements, with the possibility of finding high-yield savings accounts without minimums or monthly fees.

Disadvantages of Savings Accounts

- Some savings accounts may have minimum balance requirements, although they are typically lower than those of money market accounts.

- Withdrawals may be limited, similar to money market accounts.

By understanding these advantages and disadvantages, you can make an informed decision about which account type best suits your financial needs.

Access ATMs: Typically, you have the ability to access your savings account through ATMs, which offers convenience when you need to withdraw money.


  • Withdrawal limits: Your ability to make withdrawals may be limited during a specific month.

Certificates of deposit (CDs)

CDs are the most restrictive among savings accounts. Opening a certificate of deposit usually requires a minimum amount of money, and the funds are held for a specific period determined by the term you choose. CD terms can vary from a few months to five years.

If you withdraw the funds before the CD matures, you will incur a penalty. Depending on the size of the CD, you can earn a higher APY compared to a savings account or money market account.


  • Higher interest rate: CDs often offer a fixed interest rate that is higher than other savings accounts, and it remains consistent throughout the term unlike money market and savings accounts.
  • No fees: As long as you avoid early withdrawals, you won't face any fees.
  • Varying term lengths: You have the flexibility to select the duration your savings will be tied up and earn interest. Banks typically offer multiple choices for CD terms.


  • Low liquidity and access: Withdrawing money from a CD is not possible through ATMs or check writing. The funds are only accessible through early withdrawal.
  • Penalties: Pulling out funds before the CD term ends will result in a penalty. Certain CDs might allow penalty-free withdrawals, but they usually come with lower APYs and additional restrictions.

Comparison of Account Features

Below is a useful comparison of account features, highlighting the distinctions among various account types you may encounter at banks or credit unions.



Money market


FDIC/NCUA insurance










Debit/ATM card










Limited transactions





Relative APY





*Dependent on the specific bank.

Choosing Between Money Market, Savings, or CD Accounts

The decision on which type of account to open depends on your financial goals and situation. If you have limited funds, a savings account is a sensible choice since it's possible to find accounts without minimum requirements.

For those looking to earn a higher APY and can meet a higher minimum balance, a money market account is a suitable option. It's also beneficial if you need convenient access to your funds.

If you anticipate not needing the funds for an extended period and desire an even higher APY, a CD is a suitable option. However, commit only the amount of money that you know you won't require until the CD term concludes.

Utilizing Money Markets, Savings, and CDs to Achieve Your Goals

Each of these accounts can aid in saving for various financial objectives. Combining these accounts can effectively work towards your goals and maximize your earnings.

Different Approaches for Various Timeframes

  • Immediate Objectives: For short-term goals, like planning a vacation, a savings account proves to be a suitable option. Although the interest earned is not significant, it is inconsequential if you need the money in the near future.
  • Mid-range Objectives: If you have medium-term goals, a money market account might be the perfect choice. It requires a higher minimum balance and provides a higher yield. Additionally, it remains liquid enough to allow for early withdrawals without penalties.
  • Long-term Aspirations: When saving for long-term goals, such as purchasing a house, CDs can be an ideal solution, especially if you have a substantial sum that you can afford to leave untouched for an extended period. Moreover, CDs offer a fixed rate, ensuring you are not troubled by rate fluctuations.

Potential Risks Associated with Money Market Accounts, Savings Accounts, and CDs

While FDIC and NCUA insurances protect your funds from bank and credit union failures, it is essential to consider other risks associated with these savings products:

  • Inflation: The most significant risk you might encounter is inflation. With rising consumer prices, your yield may not keep pace with inflation. Although your principal remains intact, your purchasing power may diminish over time.
  • Rate Fluctuations: Some accounts are more susceptible to changes in the macroeconomic environment. The yields on savings accounts, money market accounts, and CDs are dependent on market conditions. When rates decline, the yield also decreases.

When you opt for a CD, you have some protection against rate volatility since you lock in the rate for the duration of the CD. However, if the CD matures during a period of low rates and you decide to renew it, you will be stuck with a lower yield than before. It is advisable to avoid automatic renewals in such circumstances.

Many investors choose to mitigate the inflation risk associated with these deposit accounts by diversifying their investments, such as investing in stocks.

— This article has been extensively revised by Libby Wells.

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