Financial Tips

Choosing between money market accounts and CDs

Whenever inflation is in the news, most people worry about higher prices – at the grocery store, the gas pump, and everywhere else.

Inflation can bring about some positives for the average person. Higher interest rates make depositing available funds into deposit accounts – always a good idea for a rainy day or emergency – an even better idea.

While deposit accounts like traditional savings accounts earn interest, other options keep your money safe and may work better depending on your cash flow, timing, and savings goals. Learn about CDs and money market accounts – both interest-bearing accounts – and see which may work best to take advantage of higher APYs (annual percentage yields).

CDs at a Glance

  • Deposit a specific amount of money
  • Leave it for a set period
  • Earn interest at a fixed interest rate

What is a CD?

A CD is a certificate of deposit. Unlike a traditional savings account, where you can deposit and withdraw money as you see fit over time, a CD is for a set amount of money deposited when you open the account and then for a set amount of time. That fixed time is called the term. Term lengths for CDs can range from three months to five years or more.

How much do I need to open a CD?

The amount needed to open a CD varies by institution. It’s often higher than a traditional savings account, which can be as little as $25 but lower than other investment options. Typically, a minimum of $500 to $2500 is needed to open a CD, though some have lower minimum deposit requirements.

Can I access my money in a CD?

After the term is up, yes! And during the term, you can withdraw money – but you risk paying a fee that may cancel out all that hard-earned interest. Think carefully about the money you’d want to invest in a CD and plan for it to be untouchable before it reaches maturity. Unlike some other accounts, you will not receive debit card access or check-writing privileges with a CD.

How much interest do CDs earn?

Interest rates will vary on a certificate of deposit, so comparing requirements and terms is important. Historically, the interest rate on a CD with a longer term, like five years or more, would be better than the rate on a six-month CD. However, in today’s rate environment short term CDs are more lucrative. Knowing this, it’s key to keep an eye on the market and interest rates as a whole to decide what’s best for you.

Why would I choose a CD?

Some people don’t like the idea of their money being out of reach in a CD for a set period. But having your money stay in the account has benefits! The interest rates on a certificate of deposit are set for the duration and will be much higher than a regular savings account. So, there is a guaranteed return on your investment, and your investment is FDIC-insured up to $250,000.

A CD may not be your best bet if you need an emergency savings account. CDs are an excellent tool for future planning. Putting money into a CD with a set term enables you to save for expenses down the line, like a new car or a downpayment on a home.

money market accounts at a Glance

  • Higher minimum deposit than a CD
  • Flexible access to funds, including via checks and/or debit card
  • Earn interest at a variable rate

What is a money market account?

A money market account is an FDIC-insured deposit account that earns a variable interest rate on deposits and can be used like a checking or savings account in that you can add or withdraw money as you like. A higher balance may be needed to earn the annual percentage yield from interest. The interest rate on a money market account is typically higher than what’s available for traditional checking and regular savings accounts. 

How much do I need to open a money market account?

Some banks require a minimum deposit higher than a CD or traditional savings account, often between $5,000 and $10,000. A minimum balance is typically also required to avoid paying a fee. Our minimum opening deposit starts at $100.

Can I access my money in a money market account?

Yes! Before 2020, withdrawals were limited to six per month. While that limit hasn’t been reinstated, some banks still enforce it. You also won’t pay an early withdrawal fee as you might with a withdrawal from a CD. 

You can also transfer money from your money market account into another account or vice versa without penalty.

How much interest do money market accounts earn?

Interest rates vary on a money market account and can fluctuate daily. These rates tend to be higher than those of a traditional savings account. Your interest rate will depend partly on your account balance, with higher balances typically earning at a higher rate.

Why would I choose a money market account?

The higher annual percentage yield (APY) available in a money market account versus a traditional savings account offers a better return on your deposit. Plus, a money market helps you grow savings faster for a shorter-term savings goal via an insurance deposit without the risk and uncertainty of other investment opportunities, like stocks.

A money market account isn’t a great option for everyday banking because of transactional limits and minimum balances. If you want faster access to your money, say for an emergency, a money market account lets you spend or transfer funds at least a few times a month or more, without a penalty or fee. 

Does Fremont Bank offer money market accounts?

We do! Learn about our current CD offerings, with competitive, guaranteed rates, flexible terms, and FDIC-insured coverage. Or, explore low minimums to open, flexible access, and unlimited withdrawals with our FDIC-insured money market accounts.

You can also reach out to speak to us anytime about your savings options.