Money Market vs. CD: What's Better? - NerdWallet (2024)

FAQs

Which is better CDs or money market account? ›

CDs usually offer higher interest rates than money market accounts. Money market accounts are better suited for those who need easy access to their funds, while CDs are ideal for those who have a long-term plan for their savings.

Ramsey has referred to certificates of deposit as "nothing more than glorified savings accounts with slightly higher interest rates." Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money.

Indirectly losing money, however, is a downside of money market accounts. Indirect loss can occur if the interest rates tied to the account fall, thus diminishing the initial return value of your account.

Are CDs safe if the market crashes? Putting your money in a CD doesn't involve putting your money in the stock market. Instead, it's in a financial institution, like a bank or credit union. So, in the event of a market crash, your CD account will not be impacted or lose value.

Warren Buffett famously deemed them “financial weapons of mass destruction,” and others compared them to taking out fire insurance on a neighbor's home. But the CDS market may be improving transparency in the stock and bond markets.

Suze Orman urges retirees to have around five years of living expenses set aside in safe savings, and she suggests putting some of this money into a CD. You can earn high rates without really taking on much risk when you open a CD as a retiree.

Banks and credit unions can penalize savers who withdraw CD funds before maturity. CD rates may not be high enough to keep pace with inflation when consumer prices rise. Investing money in the stock market could generate much higher returns than CDs.

There is no direct way to lose money in a money market account. However, it is possible to lose money indirectly. For example, if the interest rate you receive on your account balance can no longer keep up with any penalty fees you may be assessed, the value of the account can fall below the initial deposit.

What's the catch with a money market account? ›

Key takeaways

Money market accounts are a type of deposit account that earns interest. Rates are often higher than traditional savings accounts. Money market accounts typically limit your withdrawals per month and have a higher minimum balance requirement than traditional savings accounts.

Money market investing can be advantageous if you need a relatively safe place to park cash in the short term or if you're diversifying a growth portfolio. Some disadvantages are low returns, a loss of purchasing power, and the lack of FDIC insurance.

The best way to invest 10K in individual stocks, ETFs, mutual and index funds, and stocks and shares ISAs. You can also use a robo-advisor to invest in stocks. How to invest 10k for the short term? You can invest the 100k in a high-interest savings account or a cash ISA for short-term goals.

What banks are offering 7% interest on CDs? Currently, no U.S. banks or credit unions are offering 7% APY on CDs. During August 2023, a few credit unions were offering 7% interest on CDs, but those were limited-time offers that are no longer available.

The earnings from money market funds can come from interest income or capital gains, so they're taxed the same way as other investment income.

Advantages of money market accounts often include high yields, liquidity and federal insurance for your funds. They may come with the ability to pay bills, write checks and make debit card purchases.

High-yield savings accounts, money market accounts and bonds can be good alternatives to CDs. Returns vary, but they're all considered low-risk investments. Regardless of where you keep your money, tending to your credit health is always a top priority.

Ultra-wealthy individuals invest in such assets as private and commercial real estate, land, gold, and even artwork. Real estate continues to be a popular asset class in their portfolios to balance out the volatility of stocks.