Money Market Account vs CD: Which is Better?

LendingClub offers CD terms ranging from six months to five years and you can earn up to 4.00% APY. There’s a $2,500 minimum required to open a CD account and you can deposit up to $250,000. High Yield CDs and Raise Your Rate CDs have early withdrawal penalties that vary based on your CD term. With the No Penalty CD, withdraw all your money any time after the first 6 days following the date you funded the account and keep the interest earned with no penalty. Some banks regularly pay you monthly interest before the CD matures, free of penalty. However, by doing so, you’ll miss out on compound interest or earning interest on interest.

Best 5-Year CD Rates for October 2024

The interest rate depends on where you do your banking and the type of savings account you open. Money market accounts combine features of high-yield savings accounts and checking accounts. They pay higher interest rates than traditional savings accounts and often provide checks or debit cards you can use to spend funds in the account. This hybrid model can be beneficial for people who need to prioritize liquidity while also pursuing their savings goals.

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• CDs are referred to as time deposit accounts because there are time restrictions imposed on when you can access your savings.
• Chase’s publicly-available CD rates are for clients with existing bank accounts at the institution.
• In some cases, CDs may be purchased on the secondary market at a price that reflects a premium to their principal value.

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This benchmark rate is typically the federal funds rate, which, in simple terms, is the interest rate at which banks lend money to other banks on an overnight basis. These accounts offer high savings rates, but make it easy for you to withdraw cash if needed — at no additional fee. Check-writing privileges and ATM access also make withdrawing funds more convenient than other savings accounts that require you transfer the money into a checking account first. When you open a CD at a bank or credit union, you agree to a term and a fixed interest rate. This means you know when your deposit will mature and how much interest you’ll earn during that term.

In exchange for locking up your money for a period of time, you earn a higher interest rate than you would with a typical savings account, and your returns are guaranteed. Depending on your goals, you can use one of several strategies to invest in CDs. When ranking the top CDs, we looked at APYs, term lengths, minimum deposit requirements, penalties for early withdrawals and ease of use. All of the CDs included on this list are FDIC- or NCUA-insured up to $250,000 per person. If you are opening a joint account CD with a spouse, the insurance limit is doubled.

Importance of Liquidity in Investment Decision-Making

A lengthier deposit period may result in a higher rate of interest, although this depends on the bank. CDs are issued with maturities that range in length from one month up to 10 years. When you open your account, you can make deposits the way you would to a regular savings account or checking account. Your money earns interest and, if you need to tap into it, you can do so through the withdrawal options offered by the bank. Mainly, money market accounts offer a level of liquidity that CDs don’t.

Certificates of Deposit, commonly referred to as CDs, are fixed-income investment products offered by banks and credit unions. When the six-month CD matures, check on rates at various banks or, if applicable, your brokerage. If five-year rates have invest in cds or money market gone up, reinvest the money in a five-year CD. Or, if rates haven’t risen enough or at all, reinvest the $5,000 plus the interest it earned into another six-month CD. Half your funds might stay in short-term CDs awhile if rates stay flat or drop.

Generally, an MMA is better when you have or may have an immediate need for cash. If your car engine blows up, you wouldn’t want to pay a penalty for prematurely withdrawing money from a one-year CD. If you have a near-term purchase planned, such as a new car or major appliance, an MMA provides greater flexibility from a liquidity standpoint.