When you’re planning for a major goal — such as buying your dream house or planning the ultimate vacation in Turks and Caicos — making your money work harder for you is essential. But investing in the stock market may be too risky if you need the money within a few years. Other options like money market accounts and certificates of deposit (CDs) can be attractive because they minimize risk while providing higher yields than what you’d get with a traditional savings account.

Both money market accounts and CDs boast higher annual percentage yields (APYs) — how much interest the account will earn in one year — and are backed by federal protections, but are very different accounts. When considering CDs vs. money market accounts, understanding how they differ in terms of deposit requirements and fees is key.

What is a money market account?

Money market accounts are a safe tool to build your savings and earn interest. They’re similar to savings accounts, meaning they’re deposit accounts you can continually add to as you save for your goals.

Deposits are secured up to a maximum of $250,000 through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA), so money market accounts are useful options for those that want a secure place to build their emergency fund or save for a down payment for a house.

Generally, money market accounts pay higher APYs than traditional savings accounts, and some online banks offer even higher APYs — some have money market accounts with APYs that are 10 times the national average for savings accounts.

Unlike savings accounts, money market accounts are much more accessible. Money market accounts give you check-writing privileges and issue you a debit card, so you can withdraw money from the account by writing a check to pay a bill or by using your debit card at an ATM.

However, there are usually limits on how many withdrawals or transfers you make per month. Although the Federal Reserve removed withdrawal limits, some banks and credit unions still limit customers to six monthly transfers. The bank or credit union may charge you added fees if you exceed that number.

What is a CD?

A certificate of deposit is another tool you can use to grow your money. CDs are more restrictive than money market accounts, which allow you to add and withdraw money. You open a CD with a fixed sum of cash and you leave it in the account for a specific period of time.

Like money market accounts and savings accounts, CDs are backed by the FDIC or NCUA, so your deposits are protected up to a maximum of $250,000.

During the time your money is in the CD, it earns a fixed rate of interest. CDs generally have higher rates than either traditional savings or money market accounts. And some banks offer substantially higher rates. In 2023, it’s not uncommon to find CDs with rates over 5.00%.

The trade-off for the higher rate is that you sacrifice liquidity. You cannot withdraw money from the CD until it reaches its maturity date. If you need to take out money early, you will have to pay penalties, such as forfeiting several months of interest.

Because money in CDs is harder to access, CDs are a good place for stashing cash that you don’t need to cover everyday or unexpected expenses; they can be a valuable option to grow your money when you’ve already established an emergency fund.

Money market account vs. CD: Major differences

Money market accounts and CDs are good ways to earn a higher APY than you’d get with a typical savings account, but they differ in several crucial ways:

• APYs: Generally, you can get a higher APY with a CD than with a money market account. Depending on the term and the amount of cash you put into the CD, you could qualify for an APY that is 10 times the national average for money market accounts or better.

• Rate type: CDs have fixed rates, meaning the interest rate stays the same for the duration of the CD’s term. With a money market account, rates are variable and can fluctuate over time.

• Deposits: Both money market accounts and CDs usually have minimum deposit requirements, but CDs tend to require more money upfront than money market accounts. For example, you may need at least $2,500 to open a CD.

• Fees: CDs rarely have monthly fees, but account fees are much more common with money market accounts. Fees vary by bank or credit union but often range from $5 to $25 per month.

• Accessibility: When it comes to accessibility, money market accounts have the edge over CDs. With a CD, you cannot access the money in the account until its maturity date; otherwise, you’ll have to pay penalties. With a money market account, you can readily withdraw or transfer money — up to your financial institution's monthly limits — via check or debit card.

• Savings: If you’re saving for a particular goal, you likely want to add to your account. For example, if you’re trying to save up to put 20% down on a house, you might set up automatic transfers to move money over from every paycheck. That’s possible with a money market account, but with a CD, you usually can’t add money to the account (the exception is add-on CDs).

Money market accounts vs. CDs: Which account is right for you?

Both money market accounts and CDs can play important roles in your financial planning, but which account is better for you depends on your goals and current circumstances. If you aren’t sure which account type to choose, consider these scenarios:

You have a limited amount of money available to open an account: Money market account

With a CD, you often need a substantial amount of money to open an account, such as $2,500 or more. Although money market accounts usually have deposit minimums, they are usually lower than the requirements for CDs; you can open a money market account with as little as $100, so they’re better for new savers.

You want to earn the highest APY possible: CD

CDs typically have higher APYs than other accounts, including money market accounts. You can earn significantly higher APYs and grow your money faster. When your focus is on growing your money as fast and as much as possible, a CD wins over money market accounts.

You’re establishing an emergency fund: Money market account

With a CD, you can earn a high APY, but you can’t touch the money in the CD until its maturity date without incurring penalties. By contrast, you can withdraw money from a money market account at any time without penalty if you don’t make more monthly withdrawals than your bank allows.

Because they’re more accessible, money market accounts are better for savings you may need to tap into in an emergency, such as withdrawing cash to cover an unexpected car repair or a broken appliance.

You want to lock in a high APY: CD

Although some money market accounts have higher-than-average APYs, their rates are variable. As economic conditions change, the rates can fluctuate, so the rate you earn on a money market account may be significantly lower a year from now.

CDs work differently. When you open a CD, the rate is fixed for the length of the CD’s term, so you don’t have to worry about the rate decreasing over time. CDs are the better choice for those who want to earn a reliable rate of interest and are willing to sacrifice liquidity.

Saving for future goals

Whether you’re saving for an incredible honeymoon or want to build your emergency savings, money market accounts and CDs allow your money to grow, thanks to higher APYs. Which account type is better for you depends on how much money you have on hand and how often you need to access your cash.

Both options have their advantages and drawbacks, but whatever account you choose, do some homework and research options from multiple banks and credit unions. Account minimums, APYs, fees, and other restrictions can vary significantly between banks, so you may be able to find a higher APY with fewer fees by shopping around.