What is a money market vs CD?
A money market account differs from a CD in that the money market account has checking account features. For instance, you can usually write checks from it. You may also get a debit card. Additionally, a CD is a time-deposit account, while a money market account isn't.
CDs generally offer higher interest rates compared with money market accounts. Money market accounts provide access to funds and offer interest rates similar to regular savings accounts. CDs earn more interest over time but have restricted access to funds until maturity.
Disadvantages of money market accounts
For example, you often won't earn as much with a money market account as you would with a traditional CD because the CD has a time commitment: The bank will pay you more in exchange for locking up your funds longer.
Top Nationwide Rate (APY) | Balance at Maturity | |
---|---|---|
6 months | 5.76% | $ 10,288 |
1 year | 6.18% | $ 10,618 |
18 months | 5.80% | $ 10,887 |
2 year | 5.60% | $ 11,151 |
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.
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.
CD rates tend to lag behind rising inflation and drop more quickly than inflation on the way down. Because of that likelihood, investing in CDs carries the danger that your money will lose its purchasing power over time as your interest gains are overtaken by inflation.
Money market funds.
A money market fund is a mutual fund that invests in short-term debts. Currently, money market funds pay between 4.47% and 4.87% in interest. With that, you can earn between $447 to $487 in interest on $10,000 each year.
Money market accounts tend to pay you higher interest rates than other types of savings accounts. On the other hand, money market accounts usually limit the number of transactions you can make by check, debit card, or electronic transfer.
Income earned from money market fund interest is taxed as regular income, up to 37% depending on the investor's tax bracket. While some local and state taxes offer breaks on income earned from U.S. Treasury bonds, federal income tax still applies.
Can you get 6% on a CD?
You can find 6% CD rates at a few financial institutions, but chances are those rates are only available on CDs with maturities of 12 months or less. Financial institutions offer high rates to compete for business, but they don't want to pay customers ultra-high rates over many years.
With such high interest rates, the earnings on CDs are impressive. You'll earn $850.50 for a total of $15,850.50 after one year when you open a $15,000 1-year CD with Popular Direct when calculating the returns at current rates.
That said, here's how much you could expect to make by depositing $20,000 into a one-year CD now, broken down by four readily available interest rates (interest compounding annually): At 6.00%: $1,200 (for a total of $21,200 after one year) At 5.75%: $1,150 (for a total of $21,150 after one year)
- Your Money Could Earn More Elsewhere. High-risk investments could provide better returns in the long run. ...
- Your Funds Are Uninsured. If you open a CD or a checking, savings or money market account from a bank, your funds are FDIC-insured. ...
- You Can Expect Fees.
It's technically possible to lose money in a market account, but not in the same way you can lose money in an investment account. Depending on the terms of your money market account, you could lose value to fees and inflation.
But generally, yes, it is worth having. Money market accounts offer a low-risk environment with a higher interest rate to grow your money. Money market accounts are insured by the FDIC and can help individuals reach their short-term savings goals.
Security: Both CDs and Treasuries are very high-quality investments. CDs are bank deposits that pay a stated amount of interest for a specified period of time and promise to return your money on a specific date. They are federally insured and issued by banks and savings-and-loans institutions.
In most cases yes, up to a point. CDs are typically insured up to the FDIC limit, though it is possible to buy jumbo CDs above that level. But you could also invest in a US Treasury money market fund, and Treasuries are backed by the full faith and credit of the US government without limits.
Standard CDs are insured by the Federal Deposit Insurance Corp. (FDIC) for up to $250,000, so they cannot lose money. However, some CDs that are not FDIC-insured may carry greater risk, and there may be risks that come from rising inflation or interest rates.
If you put $10,000 in a 5-year CD right now, you'd earn more than $2,600 in interest by the end of the term. That's a significant bit of interest, and what's better is that it comes with virtually no risk.
What is better to invest in than a CD?
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.
The drawback is that interest rates can change in the future, depending on the actions of the Federal Reserve. While CDs maintain a fixed interest rate, the interest rate you receive from a high-yield savings account could increase or decrease over time.
As of April 2024, no banks are offering 7% interest rates on savings accounts. Two credit unions have high-interest checking accounts: Landmark Credit Union Premium Checking with 7.50% APY and OnPath Credit Union High Yield Checking with 7.00% APY.
There aren't any traditional banks offering a 7% interest savings account in the U.S., but you will find some credit unions that offer checking accounts and certificates with rates near or above 7.00% APY. It's important to note that savings account rates are variable and can change at any time.
Money Market Account
Banks and credit unions offer money market accounts currently paying about 2%, which would produce $1,000 in interest on $50,000 over a year. Find the best current rates using SmartAsset's online money market account comparison tool.
References
- https://am.jpmorgan.com/us/en/asset-management/liq/resources/investment-academy/evaluating-risk/Money-market-fund-risks/
- https://www.cnn.com/cnn-underscored/money/best-money-market-mutual-funds
- https://www.paisabazaar.com/fixed-deposit/scheduled-banks-fd-interest-rates/
- https://www.latimes.com/compare-deals/banking/savings/7-percent-interest-savings-accounts
- https://www.cnn.com/cnn-underscored/money/pros-and-cons-of-cds
- https://www.consumerfinance.gov/ask-cfpb/what-is-a-money-market-account-en-1007/
- https://www.forbes.com/advisor/banking/savings/7-percent-interest-savings-account/
- https://www.citizensbank.com/learning/50-30-20-budget.aspx
- https://finance.yahoo.com/news/live-1-000-per-month-200011859.html
- https://www.nytimes.com/2023/04/21/business/money-market-funds.html
- https://www.jsb.bank/resources/how-to-create-a-budget
- https://www.cnet.com/personal-finance/banking/savings/these-high-yield-savings-accounts-earn-5-percent-apy-or-more/
- https://www.businessinsider.com/personal-finance/6-percent-interest-savings-accounts
- https://www.kubera.com/blog/percentage-net-worth-real-estate
- https://www.bankrate.com/banking/mma/money-market-account-advantages-and-disadvantages/
- https://tools.carboncollective.co/future-value/10000-in-20-years/
- https://fortune.com/recommends/banking/pros-and-cons-of-money-market-accounts/
- https://www.nerdwallet.com/article/investing/best-money-market-funds
- https://smartasset.com/financial-advisor/where-do-millionaires-keep-their-money
- https://www.forbes.com/advisor/banking/money-market-account/money-market-account-vs-money-market-fund/
- https://www.cbsnews.com/news/low-risk-ways-to-earn-more-on-your-money-this-spring-according-to-experts/
- https://lyonswealth.com/blog-details/10-percent-return-on-investment
- https://www.cnn.com/cnn-underscored/money/6-percent-cd-rates
- https://www.investopedia.com/terms/m/moneymarket.asp
- https://www.nerdwallet.com/calculator/compound-interest-calculator
- https://www.citizensbank.com/learning/what-is-a-money-market-account.aspx
- https://www.usnews.com/banking/articles/credit-union-vs-a-bank
- https://www.cbsnews.com/news/how-much-will-a-20000-cd-make-in-a-year/
- https://www.cbsnews.com/news/how-much-100000-earns-in-a-high-yield-savings-account/
- https://www.investopedia.com/what-can-i-earn-with-10k-in-a-cd-8400034
- https://dspmuranchi.ac.in/pdf/Blog/8)%20DEMERITS%20OF%20MONEY.pdf
- https://smartasset.com/checking-account/how-the-rich-bank-differently-from-the-rest-of-us
- https://boldergroup.com/insights/blogs/invest-funds-recession/
- https://www.forbes.com/advisor/banking/money-market-account/money-market-account-checks/
- https://tools.carboncollective.co/future-value/1000-in-20-years/
- https://time.com/personal-finance/article/what-is-a-money-market-account/
- https://www.doaneanddoane.com/what-you-need-to-know-about-million-dollar-checks
- https://www.cbsnews.com/news/why-you-should-deposit-10000-into-a-5-year-cd-now/
- https://www.bankrate.com/investing/low-risk-investments/
- https://www.experian.com/blogs/ask-experian/3-alternatives-to-cds/
- https://www.etftrends.com/monthly-income-channel/money-market-funds-great-until-tax-time/
- https://smartasset.com/investing/how-much-money-to-invest-in-stocks-per-paycheck
- https://www.forbes.com/advisor/banking/money-market-account/can-you-lose-money-in-mma/
- https://www.troweprice.com/personal-investing/resources/insights/4-reasons-to-save-in-a-money-market-fund.html
- https://time.com/personal-finance/article/money-market-vs-savings-account/
- https://banzai.org/wellness/resources/rule-of-72-calculator-by-years
- https://www.investopedia.com/articles/mutualfund/08/money-market-break-buck.asp
- https://www.schwab.com/learn/story/cd-or-treasury-five-factors-to-consider
- https://finance.yahoo.com/news/40-30-20-10-rule-132128106.html
- https://www.forbes.com/advisor/banking/safest-banks-in-the-us/
- https://www.investopedia.com/articles/mutualfund/08/money-market.asp
- https://www.bankrate.com/banking/money-market-vs-cd/
- https://smartasset.com/checking-account/what-is-a-money-market-account
- https://www.cnbc.com/2023/08/04/money-market-funds-are-paying-above-5percent-what-to-know-before-buying-.html
- https://www.calculator.net/simple-interest-calculator.html
- https://www.cnn.com/cnn-underscored/money/pros-and-cons-of-money-market-accounts
- https://www.bankrate.com/banking/savings/money-market-vs-savings-accounts-vs-cds/
- https://www.forbes.com/advisor/banking/money-market-account/money-market-account-vs-savings-account/
- https://www.investopedia.com/articles/personal-finance/111516/5-mistakes-youre-making-money-market-accounts.asp
- https://www.investopedia.com/articles/personal-finance/040915/how-much-cash-should-i-keep-bank.asp
- https://www.bankrate.com/banking/cds/the-pros-and-cons-of-cd-investing/
- https://smartasset.com/investing/how-much-interest-does-10000-earn-in-a-year
- https://www.bankrate.com/banking/mma/why-get-a-money-market-account/
- https://www.cusocal.org/Learn/Financial-Guidance/Blog/Can-money-market-accounts-lose-money
- https://www.citizensbank.com/learning/can-you-lose-money-in-a-money-market-account.aspx
- https://www.preferredbank.com/personal/products-and-services/expanded-insurance-protection
- https://money.usnews.com/money/retirement/articles/how-can-i-earn-100-200-or-500-per-month-in-guaranteed-income-in-retirement
- https://www.investopedia.com/ask/answers/053016/how-safe-are-money-market-accounts.asp
- https://smartasset.com/investing/how-much-interest-can-50000-earn-per-year
- https://www.experian.com/blogs/ask-experian/can-you-lose-money-in-money-market-account/
- https://www.npr.org/2023/06/02/1179850210/traditionally-very-safe-money-market-funds-may-no-longer-be-as-reliable
- https://madisoninvestments.com/resources/cash-money-market-vs-bonds
- https://www.investopedia.com/terms/a/apy.asp
- https://www.fool.com/the-ascent/banks/articles/heres-how-much-interest-can-you-earn-on-10000-in-savings/
- https://www.sofi.com/learn/content/can-a-certificate-of-deposit-cd-lose-value/
- https://www.investopedia.com/ask/answers/060616/can-certificates-deposit-cds-lose-value.asp
- https://fortune.com/recommends/banking/the-best-money-market-accounts/
- https://www.experian.com/blogs/ask-experian/which-type-of-savings-account-pays-highest-interest-rate/
- https://www.cnbc.com/select/money-market-account-vs-high-yield-savings-account/
- https://fortune.com/recommends/banking/the-best-cd-rates/
- https://www.investopedia.com/terms/m/money-marketfund.asp
- https://www.bankrate.com/investing/what-is-a-money-market-fund/
- https://www.cbsnews.com/news/why-you-should-put-15000-into-a-1-year-cd-now/
- https://www.sofi.com/learn/content/how-to-insure-excess-deposits/
- https://www.ecb.europa.eu/euro/cash_strategy/cash_role/html/index.en.html
- https://www.centier.com/resources/articles/is-your-money-stuck-in-a-money-market-account
- https://www.imf.org/external/pubs/ft/fandd/2012/06/basics.htm
- https://www.bankrate.com/banking/cds/how-much-100000-could-earn-you-1-year-cd/
- https://www.cnn.com/cnn-underscored/money/can-you-lose-money-in-a-money-market-account
- https://www.goodreads.com/quotes/6646740-i-suggest-a-money-market-account-with-no-penalties-and
- https://www.cnn.com/cnn-underscored/money/are-money-market-accounts-safe
- https://www.forbes.com/advisor/banking/savings/best-5-percent-interest-savings-accounts/
- https://www.bankrate.com/banking/mma/are-money-market-accounts-safe/
- https://www.gobankingrates.com/money/making-money/best-ways-to-double-5000-dollars/
- https://finance.yahoo.com/personal-finance/can-you-lose-money-in-money-market-account-182341738.html
- https://www.quora.com/Is-it-safer-to-put-money-in-a-bank-CD-compared-to-buying-US-Treasury-bills-now-since-the-US-government-could-default-if-the-debt-ceiling-is-not-raised
- https://www.cnbc.com/select/5-percent-interest-savings-accounts/
- https://www.experian.com/blogs/ask-experian/pros-and-cons-of-money-market-accounts/
- https://www.vocabulary.com/dictionary/disadvantage
- https://www.experian.com/blogs/ask-experian/pros-cons-money-market-funds/
- https://www.unbiased.co.uk/discover/personal-finance/savings-investing/the-best-ways-to-invest-your-lump-sum-wisely
- https://www.investopedia.com/ask/answers/012615/why-would-you-keep-funds-money-market-account-and-not-savings-account.asp
- https://www.omnicalculator.com/finance/simple-interest
- https://canvasannuity.com/blog/safest-place-for-retirement-savings