CD vs savings vs money market — what’s the difference?

November 2, 2022

  • Certificates of deposit (CDs) earn a set amount of money at a fixed rate over a set period of time
  • Money Market Accounts (MMAs) offer flexible access to your savings through debit cards and checks and often yield higher interest than traditional savings accounts
  • Traditional savings accounts yield a small amount of interest and offer full access to your funds

Although CDs, MMAs and traditional savings accounts each build interest, they all come with a different annual percentage yield (APY) as well as different rules around how they can be used. While MMAs and share savings accounts offer flexible access to your money, CDs require you to set a portion of funds aside, untouched, for a set period of time.

So which one is right for you? In this blog, we’ll explore which savings options are the best for you, so you can get on the road to reaching your financial goals — whether you’re aiming to buy your first home, upgrade your laptop or build an emergency fund for the very first time.

For long-term financial goals: certificates of deposit (CDs)

With higher interest rates than traditional savings accounts and most MMAs, CDs make your money work for you.

How do certificates of deposit work?

  • Offer higher interest rates than MMAs and traditional savings accounts
  • Grow savings at a fixed rate
  • Require you to set aside a portion of funds for a specific term
  • Can result in a fee or other financial penalty if fees are accessed ahead of time

When opening a CD, you set aside a lump sum to grow at a fixed rate over a set period of time. Since the term and interest rates are fixed on CDs, you know how much your savings will yield when the term comes to an end.

With interest rates ranging from 1% to as much as 3.5%, CDs are a great way to maximize your savings potential without taking a gamble on more risky investment opportunities. Terms range from just 3 months to 5 years, and typically, the longer the term on your CD, the higher your APY will be.

At SECU, members have a wide range of options to choose from. Check out the latest savings rates from SECU.

Are certificates of deposit worth it?

CDs are a great option for people saving towards a specific financial goal like a down payment on a house or car. They provide a safe way to leverage rising interest rates, allowing your money to grow at a guaranteed rate. If you’re looking for a reliable way to save money and you’re able to set a lump sum aside untouched, a CD could work for you, especially if you already have money saved up.

Take this scenario as an example. You’ve been planning to buy a house, but the challenging market and high mortgage rates have left you wondering if you should hold off until the market calms down. If you already have $25,000 saved towards your down payment, you could put that into an 18 month savings CD. Once the term is up, you’ll have grown your savings to $26,228.60 in just a year and a half.

As a Credit Union, our members can expect generally higher interest rates from SECU CDs than from commercial banks. Learn more about the benefits of joining a credit union.

For flexible access to your savings: money market accounts

If you want to maintain access to your funds while still seeing a return on your savings, an MMA may be right for you.

How do money market accounts work?

  • Maintain flexible access to your savings with some limitations on transfers and purchases
  • Offer access to your finances through debit cards, checks and withdrawals
  • Build a similar interest to traditional savings accounts
  • Offer some high balance accounts additional APY
  • Requires a minimum deposit of $2,000

Money market account vs certificate of deposit

With SECU’s Money Market accounts, you can grow your savings and have the flexibility to use your money whenever you want. Although CDs have much more potential to grow, they’re not always a feasible option since you can’t touch the money for an extended period of time. If you’re working towards a specific financial goal, MMAs allow you to grow your savings without putting your money out of reach.

Consider our previous example of saving towards a down payment on a home. Because the housing market can be volatile, you might find a great deal on a house that checks off all the boxes on your list but need to act quickly. If you opted for a CD, you’d likely be out of luck. With MMA you can use your money how you want while still building towards your financial goals. 

For short-term financial goals: share savings accounts

Share savings accounts share many similarities with MMAs, but there are a few differences you should keep in mind.

What is a share savings account?

  • Earn interest of 0.10% as of November 17, 2022, an APY above the Maryland average
  • Requires a minimum balance of $10
  • Withdraw or transfer funds at any time
  • Reach goals faster with automatic deposits

Ultimately, share savings accounts offer full access to your funds while still accruing interest. Because you can deposit and withdraw funds at any time, they’re the perfect method for achieving short-term savings goals like building a vacation fund or holiday budget.

Save more with SECU

As a credit union, we’re able to offer our members better interest rates and fewer fees. Start saving towards your financial goals. We have savings options for every need. Learn more about saving with SECU.

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