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Money Market vs. CD Accounts

Most of us have heard of both money markets and CDs. So, what are the differences and how do you decide which is better?

January 06, 2023 | Madison Foster

Money markets and CDs are both valuable savings tools. With so many different account options, it can be tricky to decide which is right for you.

To understand the differences and determine which is the better fit, let’s examine both.

Money Markets

A money market account is essentially a checking and savings account hybrid. Like savings accounts, money markets offer interest on the balance and have monthly withdrawal limitations.

However, like a checking account, they also allow you to write checks and, in some cases, use an attached debit card for purchases.

OMB money market accounts also come standard with free online banking and e-statements.

CDs

A certificate of deposit, CD for short, is a time deposit. This means it’s an interest-bearing account with a set maturity date that’s typically months in the future.

With a traditional CD, once you place funds into the account at the time of opening, it’s best to leave the money untouched to avoid costly early withdrawal penalties. Once the CD matures, you may either withdraw the funds or roll the money over into a new term.

Which is Right for You?

While both are designed primarily as savings instruments, they are quite different in terms of functionality.

While money markets have limits on the number of withdrawals you can make in a given time period, a set number of those withdrawals are free. On the other hand, unless your CD is a no-penalty product, you will have to pay a fee to withdraw any funds before it matures. In some cases, you may even be required to close the CD early in order to access your funds.

Money market accounts are interest-bearing and the rate is typically tiered, meaning it’s based upon the account balance – typically the higher the balance in the account, the better the rate.

CD rates usually correlate with their term – the longer the term, the higher the rate. However, many financial institutions offer limited-time CD specials, which offer much higher rates for CDs opened during the initial offer period.

To sum it up, money markets are a great option if you want an account that offers flexibility and easy access to your funds while still offering interest on the account balance. CDs are the way to go if you want to earn even more interest and are willing to set aside money and leave it untouched for a while.

If your household finances allow for it, a combination of accounts can help truly maximize your savings and wealth-building potential.


OMB and its affiliates do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decision.

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