Money Market vs. Certificate of Deposit (CD): Where Should I Invest?

Eve Chin, VP Deposit Planning & Strategy, First Republic Bank
October 6, 2021

  • Money market accounts (MMAs) may higher interest rates than regular savings accounts, with similar flexibility.
  • Certificates of deposit (CDs) offer high, usually fixed, interest rates in exchange for securing your money for a set term.
  • Deciding where to invest will depend on your circumstances and financial goals.

If you're new to saving money, one of the unwritten rules you'll discover is that you should make your money work for you. In other words, it pays to save your money in an account that earns interest on the principal balance. The question is: Which type of account is best for you?

Two popular alternatives to traditional savings accounts are money market accounts (MMAs) and certificates of deposit (CDs). Though both allow you to earn interest, they actually differ when it comes to withdrawals flexibility and other account features.

To help you choose the best product for your financial goals, here’s what you need to know when it comes to the money market versus CD debate.

What is the difference between a Money Market Account and a CD?

While both money market accounts and CDs are both known savings tools, they have several differences worth noting.


Money Market Account

Certificate of Deposit

What is its ideal usage?

Easy access and/or short-term investments (e.g., an emergency fund)

Long-term investments you won’t need to touch for a while (e.g., to save for a down payment on a home)

How high is the interest rate?

Variable and historically, higher than traditional savings accounts, although they’re comparable at the moment1

Typically higher than savings accounts or MMAs and at a fixed rate depending on which term you elect

Is it insured?


Yes, up to $250,000 per depositor, by the FDIC (for banks) or NCUA (for credit unions)

Yes, up to $250,000 per depositor, by the FDIC (for banks) or NCUA (for credit unions)

Can you add money to the account?


Only during the end of the CD term

Can you withdraw money?

Yes, usually up to six times per month2

Yes, but you will incur a penalty if it’s before the end of the agreed-upon term, with the exception of liquid CDs

What fees are incurred on the account?

If you withdraw past the dollar or number of withdrawals limit or go below the minimum balance requirements

If you withdraw funds earlier than the term length

1 The Federal Reserve is raising interest rates aggressively in 2022, so that may change. The interest rates within the account also change over time.

2 The Federal Reserve removed this restriction in April 2020 to better support consumers during the economic upheaval caused by the COVID-19 pandemic, but many financial institutions maintain the rule as is. Whether the restriction will be removed permanently — with financial institutions following suit — remains to be seen.

Now that you know the high-level differences between money market and CD accounts, it’s time to get into the details of each to help determine which one will best serve your financial needs.

What is a money market account?

Pro Tip: Money market accounts are not to be confused with money market funds, a type of brokerage-offered mutual fund that is not FDIC insured and typically includes an expense ratio.

A money market account is a savings deposit that earns interest at a rate that the bank or credit union can change at any time after the account is opened. Money Market s accounts allow unlimited deposits and may permit a limited number of transfers, including check writing capabilities, within an established time frame (e.g., per month or statement cycle). They may also allow account access via an ATM or debit card or in person at a branch of the financial institution.

First Republic offers both Money Market Savings for those who want the benefit of attractive interest rates, and Money Market Checking accounts, for those who want the convenience of accessing funds via limited check writing or ATM card while earning interest.

Pros and Cons of a Money market Account

To help you decide if a money market account is right for you, here’s a look at some of its pros and cons.


  • Liquidity: Withdrawals may be made at any time.
  • Overdraft protection: Automatic transfers can be established to provide overdraft protection for your checking (while your other funds continue to earn competitive rates).
  • Competitive rates: In general, the annual percentage yield (APY) is higher than the APY on savings accounts. Some banks pay interest based on the balance in the account (i.e., the higher the balance, the higher the rate). However, it’s important to reiterate that money market account rates are currently comparable to traditional savings accounts, with some high-yield savings accounts edging out money market accounts.
  • Access to ATM cards: In some cases, banks or credit unions will give you an ATM card to access funds from your money market account.
  • Money is insured: Funds in money market accounts are insured up to $250,000 per depositor by the Federal Deposit Insurance Corporation (FDIC) for bank accounts or the National Credit Union Administration (NCUA) for credit unions.


  • Limit on transfers: Number of transfers, including check writing as applicable, per month or statement cycle may be limited. Any excess number of transfers may be subject to a fee.
  • Variable rates: Rates are variable, meaning they can change at any time after the account is opened, depending on the current rate environment and market conditions.
  • Balance requirements: You may be required to open the account with a high minimum deposit and/or maintain a minimum balance on the account to earn interest or to avoid monthly service fees.

What is a Certificate of Deposit (CD)?

A certificate of deposit (most commonly referred to as CD) is a time deposit account. When you open a CD, your money is locked up for a specific term of your choice, anywhere from seven days to several years, depending on the terms offered by your financial institution. In exchange, your financial institution pays a fixed rate to guarantee the interest amount you will receive at the end of the term (the maturity date), making CDs a predictable investment. In general, longer-term CDs pay higher interest rates.

The main draw is that a CD earns a fixed interest for the term of the account regardless of the rate environment during the term— so you don’t have to worry about rate fluctuations. In general, CD rates offer a higher APY than the rates for savings and money market accounts because you can’t make withdrawals before the account matures.

First Republic offers both certificates of deposit, for those who want a higher guaranteed interest rate, and liquid certificates of deposit, for those who want the freedom of accessing funds regularly in exchange for lower interest rates.


During the term of the CD, there are no rate fluctuations; that means you’ll know exactly how much your account will earn by the end of its term. The downside is that if you need to access the money before maturity, you’ll have to pay a significant penalty for early withdrawal.

In short, CDs are a secure way to save money, and earn interest on the principal in the account with predictable returns. As always, please speak with a tax advisor for any questions related to the taxable income from Money Market Accounts and CDs.

Pros and Cons of a CD

Here’s a more detailed breakdown of the pros and cons of CDs to help you decide if it’s a good move for you.


  • Competitive rates: Depending on the type of account, a CD can yield a higher interest rate than other traditional savings accounts.
  • Money is insured: Funds in CD accounts are insured up to $250,000 per depositor by the FDIC or NCUA.
  • Predictable returns: In contrast with other investment vehicles, CDs offer predictable, guaranteed returns on the funds you put in. You set aside a specific amount of money at a fixed rate for a set amount of time, and you don’t have to worry about performance.


  • Early withdrawal penalty: The money in a CD must stay locked up for a set period and can only be withdrawn at maturity; otherwise, you’ll incur a significant early withdrawal penalty.
  • Renewals: Your bank may inform you when your CD term is about to mature, with the exception of 30-day CDs or shorter. But, if you somehow miss taking action at maturity, your account may automatically renew at the same term. This means that you cannot increase the deposits amount or change to a new term once the new term begins. At First Republic, clients can set up CD maturity reminders through online or mobile banking.

The bottom line: Money Market Account or CD?

When deciding which savings method to go with, think about the benefits of each type and consider which one best aligns with your needs. Are you comfortable with setting aside money for a period of time to allow it to grow? If so, a CD may be a better investment. But if you prefer to have immediate access to your savings for unforeseen circumstances or needs, then a money market account may be a better fit.

Of course, there’s always a third option: You can split up your savings between a money market and a CD account so you can reap the benefits of both.

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