Certificate deposits (CDs) and money market accounts (MMAs) are two examples of interest-bearing federally insured savings accounts. However, their costs and levels of accessibility vary. The rates on CDs are typically higher, and you can’t access your money until the period ends. If you’re thinking about opening an account but can’t decide between a CD or money market account, this article might guide you in the right direction.
Money Market vs. Certificate Deposit: Which Is Best for You?
You can choose from various account types when trying to save your money. Straightforward savings account with a fixed interest rate could be the first thing that comes to mind. Additionally, you can select a certificate of deposit or a money market account (CD).
A money market account resembles a hybrid of a checking and savings account. A CD, on the other hand, has defined withdrawal and term restrictions and does not provide as much freedom in how you can access your money.
What is a Money Market Account?
Money market accounts (MMAs) are practical instruments that help you manage your money. They are best characterized as a hybrid between checking and savings accounts. Based on the interest rate applied at the time, money market accounts and savings accounts earn similar interest. Additionally, MMAs typically offer better rates than regular savings accounts.
Money market accounts frequently come with ATM cards and the ability to write checks, much like a checking account. However, not all money market accounts offer these benefits, so you should be sure with your bank.
MMAs, however, lack total flexibility in checking accounts. As with a savings account, MMAs restrict you to six outgoing transactions, including transfers and withdrawals in every statement cycle.
MMA minimums are another thing you will want to avoid. Better interest rates may come at the expense of higher minimum deposits and balance requirements. Typically, this entails a minimum payment of $2,500 or more, with some deposits going as high as $5,000.
What Is a Certificate Deposit (CD)?
Term-based deposit accounts are certificates of deposit or CDs for short. When you open a CD, your bank or credit union will provide options for the term’s duration. Typically, these durations fall between three months and five years.
You must deposit money into your account as soon as you open it. You cannot make any withdrawals or further deposits during the term’s length; that deposit remains there this entire time. This significantly restricts how frequently and easily you can access that money.
The entire purpose of Certificate Deposits (CDs) is to lock away your money while it earns interest for a predetermined period. This allows the issuing bank to utilize your funds for other reasons. When your CD matures, you will get your initial deposit back together with all the interest it has gained over the term.
You will incur a significant fine if you attempt to withdraw money during this term, as that is not how CDs are supposed to work. Depending on the length of your CD’s term, this normally deducts days or months of interest from your withdrawal.
Additionally, CDs may have large minimum deposits of $500 to $10,000. This prevents potential consumers from starting a CD if they cannot put that much money aside securely.
Money Market Accounts vs. CDs: Which Is Better?
Since money market and certificate deposit accounts are structured differently, comparing them as a whole wouldn’t be fair.
Money market accounts are preferable to CDs if you want an account that’s easier to access. Money market accounts provide simple deposits and withdrawals using personal cheques, ATM cards, online banking, and mobile devices. Also, you should confirm whether a bank offers personal checks or ATM cards with money market accounts. The only six outgoing transactions you are permitted per statement cycle will be your main restriction.
Contrarily, the whole point of CDs is to restrict your access to your money until it matures and reaches a specific interest rate. You cannot move money in or out of an account after opening it and depositing your first amount. If you do try to withdraw money, you will have to pay a major penalty.
However, if you tend to spend more money than you save, this might help you save your money. A money market account can sometimes provide too much flexibility.
Money market accounts might be the best option when it comes to interest rates. Standard savings account rates and interest on short-term CDs are often lower than MMA rates. Money market accounts can offer better rates than CDs, but these are typically long-term accounts with terms of two years or longer.
You will likely have to wait a few years to access the money if the CD rate is higher than the interest on a money market account.
How can you open Money Market Accounts and CDs?
You can open money market and certificate deposit accounts at credit unions and banks. Although some banks do not provide services for money market accounts, some provide services for certificate deposits with different terms and rates. Online banks may also assist you with reasonable interest rates for your account type.
The money market and certificate deposit provide useful ways to save and access your money. Money market accounts are suitable for people who want access to their money and can handle their accounts easily, and the access could be through a checkbook or an ATM card.
Meanwhile, Certificate Deposits help you save your money and keep it aside so you don’t spend it for some time until it matures and gains enough interest. This helps your money stay safe and growing.
Tips for Saving your Money
- It is very important to build a financial plan for your savings. You can get the assistance of a financial advisor in this regard to provide you with professional help when spending your money. You can find a financial advisor online or on their website. The interviews are free of cost, so you can decide who to choose and which is right for you. They can help you achieve your financial goals and targets in the easiest way possible.
- You can also open a savings account in the same bank you work at, and they might not offer favorable interest rates that allow you to earn more.
- You can also save money by eliminating debt, setting saving goals, and making further financial plans.
- Also, make sure you keep track of your spending and avoid spending on things you may not end up using. In this case, opening a Certificate Deposit account would be best for you.
Conclusion
We have discussed certificate deposits and the money market in today’s economy. The accounts for the money market and CDs are two different types of federally insured savings for earning interest. They both have different rates, processes, and terms. Money market account in today’s economy is helpful in accessing your money easily, while certificate deposit accounts are for saving and keeping your money aside to earn interest for a particular period.
