Are you looking to boost your savings but not sure where to start? You're not alone. Many people struggle with deciding where to safely deposit their cash while also seeking growth. 

Money market accounts (MMAs) and certificates of deposit (CDs) are popular savings options. Each has its perks and potential drawbacks, and the right choice often depends on your financial situation and goals.

Whether you're planning for a major purchase or want to grow your emergency fund, exploring the differences between money markets and CDs can help you make a smart choice for your future. Here’s a closer look at how each option works—and the potential pros and cons—so you can decide which might be the best fit for your savings strategy.

Key Differences Between Money Markets Vs. CDs

  Money Market Accounts CDs
Access to Funds Flexible, May have limit on number of monthly withdrawals. Withdrawals may occur penalties.
Interest Rates Variable Fixed
Minimum Deposit Varies depending on institution Typically has higher minimums
Check Writing Varies depending on institution No
Debit Card Varies depending on institution No
ATM Card Yes No

What Is A Money Market?

A money market account is a specific type of savings account offered by most banks and credit unions. It has some features in common with a checking account and some that are similar to a savings account, creating a versatile platform for managing your finances. This hybrid nature makes MMAs popular for individuals seeking a middle ground in their banking experience. 

Money market accounts pay interest, like a savings account, but some also have check-writing features and often come with a debit/ATM card. This allows individuals to grow their savings while also providing the convenience of easy payments and withdrawals.

Reasons To Consider A Money Market

Depositing funds into a money market account can be a smart choice for many savers. Here are some reasons to consider adding a money market account to your financial plan.

Higher Interest Rates Compared To Basic Savings

While money market interest rates vary depending on the financial institution and market conditions, they generally pay higher rates than standard savings accounts. Some money market accounts also offer special "relationship rates" that offer chances to earn higher rates, or tiered interest rates, where higher balances earn higher rates, rewarding those who prioritize savings. 

Safety and Security

Money market accounts at banks and credit unions are insured by the Federal Deposit Insurance Corporation (FDIC)[1] or the National Credit Union Administration (NCUA)[2] up to applicable limits. This provides a layer of security, ensuring your money is safe if the financial institution fails. 

These features can make MMAs particularly appealing for emergency funds or for those looking to maximize savings growth without the potential risks associated with investing in the stock market or other securities. 

Potential Drawbacks

While money markets have several advantages, it’s important to know a few potential limitations.

Minimum Balance Requirements

Many MMAs require a minimum account balance. Failing to meet this minimum can result in fees, potentially diminishing the overall benefit of the account.

Variable Interest Rates

MMAs typically have variable interest rates, which can fluctuate based on market conditions. While this may allow you to earn higher interest, it also introduces uncertainty compared to fixed-rate savings products, like CDs. 

Transaction Limits

It’s common for money market accounts to place limits on the number of monthly withdrawals and transfers you can make each month. While this can vary depending on the institution, exceeding the monthly transaction limit could result in fees or other changes to your account.

Lower Yields Compared To Other Options

MMAs generally offer higher interest rates than standard savings accounts. However, they might provide lower yields compared to other options, such as high-yield savings accounts or CDs. 

Inflation Risk

As with any interest-bearing account, there's a risk that the interest earned on an MMA may not keep pace with inflation. This could erode the purchasing power of your savings over time.

The Bottom Line

Money market accounts strike a balance between earning potential and accessibility, making them suitable for those who want moderate growth with the convenience of liquidity. They are ideal for emergency funds or short-term savings, offering a higher interest rate than regular savings accounts while providing flexibility for withdrawals. However, for long-term investment goals or those seeking higher returns, other options like high-yield savings accounts or CDs might prove more appropriate.

What Is A CD?

A certificate of deposit is another type of financial product offered by banks and credit unions. CDs typically offer higher interest rates than regular savings and money market accounts. When you open a CD, you commit to investing a specific amount of money for a predetermined period ranging from a few days to as long as ten years or more.

Generally, the longer the term of the CD, the higher the interest rate you may receive, although this may vary depending on market conditions. To realize the return from the posted interest rate, you typically must leave the funds untouched until the end of the term, also known as the maturity date. Upon maturity, you have the option to either reclaim your initial investment, along with the interest it has earned, or reinvest the funds into a new CD. This allows for flexibility in managing the returns on your investment.

Reasons To Consider A CD

Depending on your goals and financial situation, investing in a CD may be a wise move. Here are a few factors that may make CDs a compelling option for savers.

Rate Of Return

One of the primary benefits of a CD is the return on investment. Unlike stocks or mutual funds, the interest on a CD is fixed and does not fluctuate with market conditions, providing a predictable and stable return.

Higher Interest Rates Compared To Other Savings Options

CDs typically offer higher interest rates compared to regular savings or money market accounts. Generally, the longer a CD’s term, the more interest it pays, helping offset the loss of liquidity.

Wide Range Of Term Lengths

CDs offer a range of term lengths to suit different savings needs and goals. Whether you’re looking to invest for the short term or making a long-term commitment to growing your money, there’s likely a CD that aligns with your financial timeline.

Safety and Security

CDs are typically insured by the FDIC or NCUA up to certain limits, protecting your investment in the event of a bank failure.

Potential Drawbacks

While a CD can be a beneficial component of a savings plan, it’s important to consider the following potential drawbacks.

Limited Liquidity

One of the primary drawbacks of purchasing a CD is its lack of liquidity. Accessing funds before the maturity date could lead to a loss of interest or potential penalties, which can prove an issue if you need funds for an unexpected expense.

Interest Rate Risk

If market rates rise significantly during the term of your CD, you may need to either leave the funds invested at the lower rate you've locked in or move the funds, potentially risking fees or a loss of interest. This situation can limit the earning potential of your invested funds during the term of the CD.

Inflation Risk

The fixed interest rate of a CD might not keep pace with inflation, especially with longer-term CDs. This could lead to a loss of purchasing power, even though your CD is earning interest.

Minimum Deposit Requirements

Some CDs require a substantial minimum deposit, which might limit their availability, particularly if you want to invest a smaller amount.

Fixed Rate Of Return

While the stability of a fixed interest rate can be appealing, it also means you won’t benefit from any potential interest rate increases during the term of your CD. During a rising-rate environment, this can be a significant drawback compared to variable-rate products. 

The Bottom Line

CDs can be a great choice if you're looking for a higher interest rate and can afford to set aside funds for a fixed period. They’re suitable for both short-term and longer-term financial goals, offering a secure and predictable return. However, keep in mind they’re ideally meant to be held to maturity, and the interest rates may not keep pace with inflation.

Explore Your Savings Options With PNC Bank

Money market accounts and CDs are both relatively safe investment options for those looking for a place to deposit cash. With fixed interest rates and FDIC insurance, CDs can be an excellent option for funds you don't anticipate needing right away. Money market accounts offer competitive interest rates and easy access to your money, making them ideal for growing your savings while maintaining liquidity.

With a solid understanding of the key differences between money markets vs. CDs, you’re ready to keep exploring your savings options. PNC Bank’s customer service team can help guide you toward the financial solutions most likely to fit your unique goals and circumstances. Reach out today to learn more about how we can help you optimize your savings.