CDs vs. MMAs vs. Savings Accounts

Key Takeaways

MMAs and CDs both offer higher interest rates than traditional savings accounts on average, but the best savings account rates are competitive.
MMAs typically have higher initial deposit and monthly balance requirements than savings accounts.
CDs require that you leave your money untouched for a fixed amount of time.
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 Accounts for Saving
	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

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. Often, $25 is sufficient. You may need to keep a minimum balance in the account to avoid a monthly fee, ranging from $25 to $1,000, depending on the bank and the account. You may be given an ATM card to make withdrawals but could also be limited in how often you can use the card, and 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.

On average, you usually won’t 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 at online-only banks and offer some of the best savings account rates that beat even money market account rates. There are no federal restrictions on how many accounts or banks you store your money in.

Who Savings Accounts Are Good for

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

Pros

Can open a basic savings account with a small amount
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 all 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 feature extra requirements

Money Market Accounts (MMAs)

Banks and credit unions also offer another type of savings account, the money market account (MMA). MMAs are similar to traditional savings accounts but offer higher interest rates, 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 maintain a higher balance to avoid fees.

A money market account can require a higher deposit amount to earn a higher interest rate. Unlike traditional savings accounts, which 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.

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 offer the ability 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 offer tiered savings, minimum balances, or monthly fees.

Who MMAs Are Good for

Individuals with large amounts of cash to deposit
People who want the ability to write checks from their money market account
Individuals who want to save emergency funds in an account earning higher interest, on average

Pros

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

Cons

Higher balance needed to avoid monthly fees
Potential limits on the number of monthly withdrawals
Lower interest rates if balance drops out of higher tiers

Certificates of Deposit (CDs)

When opening a certificate of deposit (CD) account, you allow the bank to use a lump sum of your money for a fixed period—as short as a month or as long as ten years, as you choose. At the maturity date, you can withdraw your funds and close the account or renew the CD at current rates.

CD interest rates can be higher than for traditional savings accounts or MMAs. CDs can therefore be desirable for savers making large deposits without needing 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 face a steep fine for early withdrawals, typically several months' interest. You usually can't add to your CD, 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 amounts 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 the most-competitive, most-restrictive rates.

While many institutions offer CDs with a $0 opening balance, the best CD rates can often be found with institutions requiring larger deposits, ranging from $500 to $10,000.

As with MMAs, higher balances on CDs tend to offer higher rates. CDs generally have fixed interest rates, which could leave you stuck at a lower interest rate if overall rates keep increasing.

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.

Who CDs Are Good for

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

Pros

Higher average interest rates than traditional savings accounts or 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

Steep penalties for early withdrawals in some cases and no partial withdrawals
A fixed interest rate could prevent benefiting from future interest rate increases
Remembering to manage your CD at maturity could take some work

What Are the Main Differences Between CDs and MMAs?

MMAs are similar to traditional savings accounts but often require a large deposit to open the account, such as $1,000. You can add to or withdraw from your MMA. A high minimum balance can help you avoid fees and provide for higher interest rates than savings accounts. CDs require owners to leave their money untouched for a fixed amount of time and usually pay higher rates than MMAs. Penalties for early withdrawal are steep and effectively close the account.

Who Should Be Investing in MMAs or CDs?

MMAs are good for those with large amounts of cash to deposit, but not needing daily or weekly access to those funds. MMAs can also be for those adding to their accounts. CDs can be better for those who want to lock up funds for several months to several years at a time. By doing so, CD account holders save at higher interest rates for a time-defined, specific goal—such as a car or home in 12 to 18 months

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

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

CDs vs. MMAs vs. Savings Accounts — Investopedia / Zoe Hansen

The Bottom Line

When deciding if a traditional savings account, MMA, or CD is best for you, you’ll need to 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 some financial institutions for deposits, you may find higher rates in surprising places—whether as a CD, high-yield savings account, or money market account—and not necessarily at your current bank or credit union.

If you need 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 larger sum of money untouched for a long stretch of time, a CD may be the better option.