Certificates of Deposits vs. Money Market Accounts: Which Is the Right Choice for You?

When thinking about how to put your money to work for you, your first instinct may be to open a traditional savings account. However, you can choose from several options, including money market accounts and certificates of deposits. These accounts will help you diversify your portfolio and achieve your savings goals.

Let’s talk about how these accounts work, the difference between them, and when you should choose one over the other.

What Is a Money Market Account?

A money market deposit account, also referred to as a money market account (MMA), is a unique money management tool often regarded as the middle ground between savings and checking accounts. These accounts are useful short-term investments, offering market-based interest rates typically higher than savings accounts. Since they come with variable interest rates, they will fluctuate according to the interest rate market.

These accounts offer more flexibility than a traditional savings account, allowing you to easily transfer funds. Many financial institutions will offer perks similar to what you’d find with typical checking accounts. These may include debit cards, ATM access and check writing capabilities — make sure you understand before deciding.

What Is a Certificate of Deposit (CD)?

A CD is a term-based account that earns interest, usually at a fixed rate, and does not allow you to access your money until maturity without a substantial penalty. These periods will last anywhere from a few months to five or more years, offering a long-term investment solution with a lower risk and a more secured return than other accounts.

You are not permitted to make any withdrawals or additional deposits during your term. Traditional CDs will charge a penalty if you need to withdraw money. In some situations, lenders will allow you to withdraw without a penalty, but these accounts will likely have lower interest rates.

Throughout your CD’s life, the issuing bank will use your money for other purposes, returning your initial deposit plus all earned interest when you reach the maturity date. For some, it’s wise to have multiple CDs, creating a CD ladder. The idea is to open CDs with varying maturity dates, increasing your liquidity and decreasing the chances of triggering an early penalty.

What Is the Difference Between a Money Market Account and a Certificate of Deposit?

MMAs and CDs are strategic ways to save that earn interest on an initial deposit. MMAs offer regular access to your money with rates similar to savings accounts, while CDs have higher interest rates and secure your money until the end of the term. With these structure and function differences, you may wonder which is better for your situation. Let’s evaluate the potential pros and cons of each.

When Are Money Market Accounts a Good Investment?

Since life is rarely predictable, you never know when you’ll need a car repair or even a surprise trip to the emergency room. You can dip into your money market account when these unplanned expenses pop up. They help you preserve uninterrupted access to your money while you earn interest. These accounts allow you to deposit, transfer or withdraw your money whenever you need with ATM cards, personal checks, or online and mobile platforms.

MMAs are also viable options when you want to take advantage of rising interest environments. Many financial institutions will adjust product rates in tandem with increases in the broader interest rate market, often determined by Federal Reserve price hikes.

Additionally, you should be aware that changes also happen when the market goes down. Still, if you’re looking for a shorter-term option that offers strong interest rates, flexibility and unique checking account perks, a money market account might be what you need.

When Should You Choose a CD Over a Money Market Account?

If you’re looking to sideline some money for a longer time, consider opening a CD. These accounts are excellent options for a hands-off investment, locking funds in at higher rates for more extended periods. Many choose this account to save for future purchases like a car or a down payment on a home.

For many people, CDs offer a secure place to hold their money and watch it grow. These accounts come with fixed rates, eliminating the risk of price fluctuations in the market. You may also find CD variations to better fit your situation by speaking to your local financial partner.

CDs are a wise option if you’re looking for a safe investment opportunity that benefits from higher, secure interest rates and tells you exactly how much you’ll earn at the end of the term.

Could I Lose Money in an MMA or a CD?

MMAs and CDs are federally insured accounts by the Federal Deposit Insurance Corporation. So, if you’re wondering which is safer, a CD or an MMA, you can rest easy knowing you have coverage for up to $250,000 in both accounts per depositor.

Open a Certificate of Deposit or Money Market Account at Mid Penn Bank

At Mid Penn Bank, we offer money market accounts and certificates of deposit to individuals, businesses and nonprofits. Since 1868, we have remained steadfast in our mission to provide our local community with comprehensive financial solutions they can rely on.

To open a CD or MMA with us at Mid Penn Bank, visit one of our local financial centers near you. If you don’t already have an account with us, opening one online is quick and convenient.

For more information about rates or assistance choosing the right option for your savings, contact us online to speak with a professional today!

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