CDs vs. Money Market Accounts: Which one should you choose?

Growing your money isn’t just about how much you earn – it’s also about how much you save.

If you put away part of every paycheck, you can build your savings and reach your goals sooner (whether it’s to buy a home or retire early). So, what are your options for making the most of your money?

If you're looking for a secure, steady way to save, consider a Money Market Account or a Certificate of Deposit (CD). Both are FDIC-insured and may offer attractive interest rates, making them helpful additions to your financial toolbox. Now, the question: Which one’s right for you?

Read on to understand the key differences between money market accounts and CDs, so you can take your next financial step with confidence.

What's a Money Market Account?

A money market account is a close cousin to a traditional savings account, but typically offers a higher interest rate and requires a higher balance. If you’ve started to build savings already, this may be a good option for you.

A money market account may:

• Offer variable interest rates that are higher than a typical savings account
• Earn more interest when you increase your balance
• Give you the flexibility to access your money at an ATM or via check ^{footnote 11}

If you put your hard-earned cash in a money market account, you could potentially earn a higher interest rate, while enjoying some flexibility. Typically, you can access your money at an ATM and, in some cases, even write checks from your account. It all depends on who you open a money market account with, so if you go this route, be sure to understand the interest rates, any fees and transaction limitations.

Great if: You want to earn more money than you would in a typical savings account, and if you’d like to take out money if you absolutely need it. ^{footnote 11} 

What’s a Certificate of Deposit?

With a Certificate of Deposit (CD), you agree to put your money away for a set period of time. In return, you can generally earn a higher interest rate than you would in a money market account.

A CD may:

• Offer higher interest rates than a money market account
• Let you choose the length of your term (usually between one month and five years)
• Earn a higher fixed interest rate the longer you lock in
• Require you to keep your money in until the maturity date to avoid early withdrawal penalties

If you take out your money before the maturity date, you may be hit with a penalty or fee (so best not to do that!). If you choose a CD, you should be comfortable keeping your money where it is.

Opting for a CD can make saving a bit easier, as your cash isn’t as accessible as a money market account (this way, you won’t dip in to buy something on a whim).

Ready to take your savings to the next level? Consider a CD laddering strategy. You’ll benefit from the higher interest rates of longer-term CDs, while being able to access your money if you need it when the shorter-term CDs mature.

Great if: You want to earn more money than you would in a typical money market account. Also, if you’re okay with keeping that money put away.

Money Market Accounts vs CDs

When it comes to putting your money in a money market account or CD, there are several things you should consider:

• Will you need to dip into these savings along the way?
• Are you looking for a variable or fixed interest rate?
• How much can you invest? Is that enough for the minimum balance or deposit required?
• Are there any fees or early withdrawal penalties tied to the account?
• Are there transaction limitations tied to the account?

If you’re looking for day-to-day flexibility and easy access to your funds¹, a money market account may be a better fit. However, if you can afford to hold your cash for longer periods of time, a CD may produce a higher return.

At BMO, your money is FDIC insured with both a money market account and a certificate of deposit, offering more security and less risk than other investment alternatives provided by non-banks – so you can rest easy.

Tip: You can often find special CD and money market rates, so take a look and see what’s coming up this season. Here’s a look at our latest CD rates and money market rates.

When to use a Money Market Account

• You’re looking to save for medium to long-term goals
• You want access to your money without an early withdrawal penalty
• You’re okay with a flexible, variable interest rate

When to use a Certificate of Deposit

• You’re saving for a long-term goal
• You can afford to keep your cash in an account and not touch it until the maturity date
• You want a higher, fixed interest rate

The bottom line

If your savings allow it, you may want to consider using both a money market account and CDs. That way, you’ll have ready access to funds with your money market account while potentially earning higher interest in your CDs. That’ll give you the best of both worlds.