CDs vs. MMAs vs. Savings Accounts

Choosing the right type of savings account can be confusing. Are you better off with a certificate of deposit (CD)? A traditional savings account? A money market account (MMA)?

They're all taxable accounts you can open at a bank or credit union, and they're protected by the Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA). Each account has pros and cons, and the right choice for you will depend on how much money you have and your personal needs.

Key Takeaways

MMAs and CDs may offer higher interest rates than traditional savings accounts, but the best high-yield savings account rates are competitive as well.
MMAs typically have higher initial deposit and monthly balance requirements than savings accounts.
CDs require you to leave your money untouched for a fixed amount of time, or you'll pay a penalty.
The right choice for you depends on how frequently you need to access your savings, how much you have to save, and your financial goals.

Comparison: Average Features of Various Savings Accounts
	Traditional Savings Accounts	Money Market Accounts	Certificates of Deposit
Average interest rates	Lower	Higher	Highest
Rate type	Variable	Variable	Fixed
FDIC or NCUA insured for up to $250,000	Yes	Yes	Yes
On-demand partial or full deposits and withdrawals	Yes	Yes	No
Check-writing privileges	No	Yes	No

Take note that these are just average tendencies. The actual rate you get for any one of these accounts depends on the issuing bank or credit union.

Savings Accounts

These simple accounts are one of the most basic ways to bank your money. A savings account is a good choice for a young person’s first bank account or anyone needing easy cash access.

Most banks don’t require a large deposit to open a savings account. $25 is often sufficient, and some accounts have no minimum required opening deposit. You may need to keep a minimum balance in the account to avoid a monthly fee, which may range from $25 to $1,000 or more, depending on the bank and the account. You may be given an ATM card to make withdrawals but the bank or credit union may impose withdrawal limits, and you must be careful not to go below the minimum balance required.

If your savings and checking accounts are with the same bank, you'll likely be able to quickly transfer money between the accounts or use your savings account for overdraft protection. A linked savings account makes moving cash from savings to checking especially easy. However, some banks and credit unions may charge a fee for such a transfer.

Depending on the account, you may not earn that much interest—savings account rates are lower, on average, compared to most other savings vehicles.

However, some exceptions exist. A high-yield savings account (HYSA) usually offers significantly higher interest rates. These are typically offered by online-only banks, with rates that may beat even money market accounts. There are no federal restrictions on how many accounts or banks you use to store your money.

Pros

Can open a basic savings account with a small deposit
Often no fees charged if you maintain a minimum balance
Easy to transfer money to a linked checking account
FDIC- or NCUA-protected for up to $250,000

Cons

Lower interest rates on average compared to most other savings vehicles
Getting the best rate may require shopping around for a new bank or credit union
Low interest rates may not keep up with inflation
High-yield savings accounts may have extra requirements

Who Savings Accounts Are Good for

Students and children or young people beginning their relationship with a bank
Anyone who wants (nearly) unfettered access to their cash without penalty
Savers who worry a money market account's check-writing feature may be too tempting

Money Market Accounts

Banks and credit unions also offer another type of savings account, the money market account. MMAs are similar to traditional savings accounts but offer higher annual percentage yields (APYs), on average.

However, there can be a few catches. You may also need a larger deposit to open the account—$1,000 is common—and you might need to maintain a higher balance to avoid fees.

Some money market accounts require a higher balance to earn a higher interest rate. Unlike traditional savings accounts, which often pay a flat annual interest rate, many MMAs have a tiered interest rate, with higher rates for larger balances. This makes them desirable if you can maintain a high daily account balance. The best money market account rates may be competitive with the best savings and CD rates.

Money market accounts are not the same as money market mutual funds, which are a type of low-volatility, lower-risk investment vehicle.

MMAs also allow users to write checks from the account or use an ATM card for withdrawals and payments. However, because the institution may limit your transactions and withdrawals, a money market account isn't as suitable for daily expenses as a checking account.

Money market accounts differ widely—you'll need to closely review terms and account disclosures. The MMA offered by your credit union or bank may not have tiered savings, minimum balances, or monthly fees.

Pros

Higher interest rates than a traditional savings account, on average
Often have the ability to write checks
No-penalty withdrawals and additions
FDIC- or NCUA-protected for up to $250,000

Cons

Higher balance sometimes needed to avoid monthly fees
Potential limits on the number of monthly withdrawals
Best interest rates may require higher balances

Who MMAs Are Good for

Individuals with large amounts of cash to deposit
People who want the ability to write checks and access ATMs
Individuals who want to save emergency funds in an account earning higher interest, on average

Certificates of Deposit

When opening a certificate of deposit account, you provide the bank with a lump sum of money for a fixed period—as short as a month or as long as ten years, as you choose. At the maturity date, when the term ends, you can withdraw your funds and close the account or renew the CD at then-current rates.

CD interest rates tend to be higher than those of traditional savings accounts and MMAs, on average. CDs may therefore be desirable for savers who can make large deposits and won't need access to the money during the CD’s term. CDs are FDIC-or NCUA-insured for up to $250,000.

However, there's a trade-off. You will usually face a steep penalty fee for early withdrawals, typically several months' interest. You usually can't add money to a CD after it's opened, although some banks and credit unions offer CDs with this option.

The types of specialized CDs available can be overwhelming at times. Types include:

No-penalty CDs: No penalty for early withdrawal.
Add-on CDs: You can add funds to your CD.
Bump-up, raise-your-rate, or step-up CDs: CDs with rates that can increase if interest rates go up.

The tradeoff for these CD types is often a lower interest rate and fewer term choices compared to accounts with the most competitive rates.

While many institutions offer CDs with $0 minimum deposits, the best CD rates may in some cases be found with institutions requiring larger deposits, ranging from $500 to $10,000.

As with MMAs, CDs with higher balances may offer higher rates. CDs generally have fixed interest rates, which could leave you stuck at a low APY if overall rates increase. But fixed interest rates also allow you to lock in a high rate, which is valuable if overall rates decrease.

The particular bank and term length you choose can significantly impact your interest rate. Shop around to find the top CD rates, which change frequently.

Pros

Higher average interest rates than traditional savings accounts and MMAs
FDIC- or NCUA-protected for up to $250,000 per depositor per institution
Easy to open online, with plenty of terms and types available, including bump-up and variable-rate CDs

Cons

In most cases, steep penalties for early withdrawals and no partial withdrawals
A fixed interest rate won't grow if overall interest rates increase
Remembering to manage your CD at maturity could take some work

Who CDs Are Good for

Individuals who don't need access to the deposited funds for several months to several years
Those who don't plan to add to their savings bucket over time
Larger (or jumbo) CDs often get higher interest rates, so individuals with a larger deposit amount may see a better return

Frequently Asked Questions (FAQs)

What Are the Main Differences Between CDs and MMAs?

MMAs and CDs share some features, but there are important differences. MMAs are similar to traditional savings accounts but may require a large deposit to open, such as $1,000. You can add to or withdraw from your MMA. A high minimum balance can help you avoid fees and access higher interest rates. CDs require owners to leave their money untouched for a fixed amount of time, and they tend to pay higher rates than MMAs. Early withdrawals from CDs typically come with steep penalties, unlike MMAs.

Who Should Invest in MMAs or CDs?

Money market accounts are good for those with large amounts of cash to deposit, and those who want the ability to access their funds by check or ATM card. MMAs allow you to add funds over time, increasing your deposit. CDs can be better for those who don't mind locking up a set deposit for several months to several years in return for a fixed interest rate. CDs are useful when saving up for a specific, time-defined goal—such as buying a car or home in 12 to 18 months

Which Is More Liquid: A CD or a Money Market Account?

In general, money market accounts are more liquid than CDs. In fact, most CDs have early withdrawal penalties, while MMAs do not (some MMAs may have withdrawal limits, however). That said, CDs will often pay higher interest rates, because your funds are committed to that bank or credit union. Some no-penalty CDs don't come with fees, but you may earn a lower interest rate.

The Bottom Line

When deciding if a traditional savings account, MMA, or CD is best for you, consider how much you can deposit initially, how frequently you need access to your savings, and how much you’d like to earn in interest. Due to competition among financial institutions for deposits, you may find higher rates in surprising places—either a CD, high-yield savings account, or money market account—and not necessarily at your current bank or credit union.

If you'll need the money for bills or emergencies or want to add to your funds, a traditional savings account or MMA is the best choice. If you can afford to leave a large sum of money untouched for a long stretch of time, a CD may be the better option.