Personal Insights

Money market vs. CD: Which one is right for me?

Want to squeeze more from your savings? Which option do you choose, and when?

Okay, granted, the topic of money markets and CDs isn’t likely to fire your imagination.

But there’s nothing more interesting than a bigger account balance, right? Or growing your money without lifting a finger?

That’s a subject that should grab your attention. If so, read on.

If you’re saving money every month, fantastic. The more you save today, the better you’re prepared to buy a house, send a child to college, prepare for retirement, or handle emergencies.

Savings accounts are a great way to set money aside, especially if you’re just starting out on your savings journey. When you put money into savings, you remove much of the temptation to spend it. And if you have short-term needs, such as saving for a vacation or a car, a traditional savings account  is often the ideal option. However, there are two other options that, under the right circumstances, may also prove a good choice.

What’s the difference between a money market account and a CD?

Both money markets and CDs  have something in common: They can offer attractive interest rates. But it’s important to consider their differences, too. Think of both accounts as unique financial tools, each being used to your best advantage in certain situations and to meet certain needs.

Which account should you choose? There is no clearcut answer, because it depends on your unique financial needs. However, there are some broad principles to consider.

• For example, if you want access to your money from time to time, then a money market is often a good way to go.
• If, however, you don’t need access to a large amount of cash for months or even years, then a CD account may prove your best option to grow that money over time.

However, let’s walk through the specifics of each account, making you the savvy money manager you always wanted to be. You can compare accounts here or, if you’d like personalized advice, a Regions branch near you is always ready to help.

What is a money market account?

A money market account is a deposit account. That means you can add to it or withdraw from it while saving for your goals.

More to the point, a money market account typically pays a higher APY (Annual Percentage Yield) than traditional savings accounts. What’s more, money markets have greater flexibility than traditional savings accounts, providing the account holder with check writing privileges for convenience.

At the same time, a money market account offers peace of mind for the account holder. Your Regions Bank deposits are fully protected up to the standard deposit insurance amount by the Federal Deposit Insurance Corporation (FDIC). The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

This accessibility, flexibility, and safety can make a money market account a desirable option for many. However, it’s important to note that the account does have certain limitations.

As one example, there are limitations on the number of withdrawals you can make from a money market each month. Also, you are typically charged a monthly fee if the account balance does not meet a designated minimum threshold. In that event, your account fees may actually negate any interest income you may gain. At the same time, the interest rate on money markets and savings accounts may change over time.

So, before opening a money market account, it’s important to do the math and see if it’s the right move for your money.

While a money market account strikes a fine balance between growth and flexibility, a CD goes all in when it comes to garnering you a solid return. However, the advantages you gain with better interest rates require you to give up liquidity.

What is a certificate of deposit?

With a CD account,  a fixed amount of your money gets locked away in an account over a defined period. The term length you choose can range from as short as a certain number of days to as long as several years. During the term of the CD, your balance accrues interest at a rate that could be higher than a traditional savings account or money market.

Know that your rate of return may hinge on any number of factors, including the length of the CD’s terms or if you currently have an existing relationship with the financial institution. With that in mind, it’s important to understand fully what rate you are getting and the term of your CD. That way, you can tailor your savings strategy accordingly.

As with a money market or traditional savings account, your Regions Bank deposits are fully protected up to the standard deposit insurance amount by the Federal Deposit Insurance Corporation (FDIC). The standard deposit insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.

While there are restrictions on your CD account, it is often possible to access the money in your CD. However, doing so may incur substantial penalties and should only be done in case of an emergency.

Now that we’ve defined how money markets and CDs work, how do you know which one to choose?

When to choose a money market account

Earlier, we mentioned that each kind of savings account should be considered a financial tool intended for specific situations. As pointed out, traditional savings accounts might prove ideal for beginning savers or for short-term goals. As one example, many smart savers have multiple savings accounts earmarked for trips, cars, and other plans.

As mentioned earlier, a money market account usually requires a higher minimum balance. If you can meet that balance and maintain it, there are situations where a money market can offer an excellent solution.

As one example, we cannot emphasize enough the need to create an emergency fund in the form of 3-6 months of expenses readily at hand. It will take time to accrue that level of savings. But once you do, a money market fund is an excellent option. The combination of availability and high returns make a money market an excellent bulwark against the unexpected in life.

Another potential use of a money market account is when saving for a large purchase. Whether it’s making the down payment for a home or putting your child through college, a money market is a good way to have the flexibility you need while getting the returns you want.

The flexibility of a money market account can also provide the money in your checking account  an added boost. While money markets can have monthly withdrawal limits and fees for exceeding those limits, they usually allow unlimited deposits. So, it’s entirely possible to sweep excess cash from your checking account into the money market, temporarily accrue interest, and then pull that cash back out on a periodic basis to pay bills.

In short, with sound management on your part, a money market account can prove the right solution for any number of situations.

When to choose a CD account?

You’re a long-term thinker. You look at the financial road two, four, even six years down the road. And you want to make sure your money gets all the mileage it can, even while staying safe and secure.

If so, let’s talk CDs.

A CD requires putting your money out of reach in exchange for better returns. That makes it important to answer the question: Will I need this money any time soon?

Only you can answer that question, but it’s an important one to pose. After all, in the event of a sudden cash crunch, the last thing you should face is being unable to access your money without a penalty.

One other factor to consider. If you lock in a CD, you lock in the rate as well. Nobody has a crystal ball, but looking at future trends in interest rates may signal whether a CD is the right choice. For example, if interest rates are projected to fall, then locking into a CD today could prove an astute financial move. However, if interest rates are slated to rise, then waiting for a more opportune time might be the wise course of action.

However, if you can save that money and forget it, a CD can be a terrific way to fund goals that are months or years away, such as the down payment for a house or a child’s college fund. A CD reliably grows your money. Without the kind of worry that comes from investing in the stock market or other investments.

How do you open a money market account or CD?

If you are ready to put your savings into high gear, opening a money market account or a CD is easy. All it takes is a few minutes of your time.

Money market: If you’re interested in a money market, you can open a Regions Premium Money Market online. Or visit a Regions branch near you! Either way, it doesn’t take very long at all.

CD: If you’re interested in opening a Regions CD, you will need to visit a nearby branch. However, count on our bankers to make the transaction easy and quick.

So, if you want better performance from your money, a CD or money market can prove to be 450-horsepower, fuel-injected savings machines, your very first step towards growing wealth. And it all begins with making sure your money lives up to its potential.

Regardless of which option you choose for your money, higher performance in your savings will likely result. And, the way we see it, the more money you earn in interest, the better.