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08.10.23

Certificate of Deposit v. Money Market Savings Account: What’s right for you?

If you’ve decided that now is the time to take the next step with your finances, then it could be the moment to consider opening a new savings account, like a Money Market, or a Certificate of Deposit (CD) account.

These are both great options for growing your money with minimal risk involved. These types of accounts give you interest on the amount of money you have in the account over a period of time. On the surface, a savings account and a Certificate of Deposit (CD) account can seem like similar ways increase your savings.

Before we get into the specifics of different accounts, there’s something important to understand: the difference between an interest rate and the Annual Percentage Yield (APY). Basically, the interest rate is the specific rate the bank will use to calculate how much to pay you after a certain period of time. The APY is, essentially, the rate you will make after an entire year of earning interest. These are different because, in many cases, you’ll earn interest more often than once a year, which means you’ll be earning interest on top of the interest that was paid out. Using the APY to compare accounts is a good idea, because it gives you an easy way to take the effect of that compound interest into account when comparing rates.

So, what’s the difference between accounts?

The biggest difference is that CDs are sold in different time intervals, called terms, with a guaranteed, set interest rate. At the end of the term, you will get out the money you put in, PLUS the interest that accrued during that time. However, you cannot take any money out of a CD until the term is up without losing out on any interest and possibly paying a breakage fee, if one is required. If, at the end of the term of your original CD, you don’t want to take out your money immediately, it will generally roll over into a new CD at terms you agreed to when opening the original account.

How is that different from a savings account? Well, in a traditional savings account, like a Money Market account (one of the most common types), you can access your money at any time. While there is often a limit to how many withdrawals you can make in a month, your money is always available to you and so is any interest you’ve already accrued. However, traditional savings and Money Market accounts don’t have a guaranteed, or fixed rate over a period of time, so the amount you can earn in interest will be more variable than in a CD account.

How do you decide?

There are many factors to take into consideration when choosing where to put your savings. A Certificate of Deposit is best when you know that you won’t be using the money you put in it for the term of the account. A Money Market account keeps your money more accessible to you, but without knowing in advance how much interest you’ll earn over a longer time period.

Your financial situation is unique to you, so once you understand the differences between these accounts, you can choose which one is best for you! Plus, it’s not completely binary. One option that works for a lot of people is to keep their emergency savings (3-6 months of expenses) in a Money Market or traditional savings account, while putting anything above that amount in a CD with a higher interest rate. That way, you’ll have the money you need easily accessible while earning as much interest as possible on the rest.

If you know you want more availability of your money while earning the fixed rate of a CD, you can make use of a CD ladder. A CD ladder is when you open multiple CDs with different maturity rates, which can allow you to benefit from higher interest rates for longer maturities while gaining access to money quickly with a short term CD as well. Check out our CD ladder calculator to see how much more you could make using this investment method.

Take your next step

If now is the time to open an account, your friends at Atlantic Union Bank are here to help. We offer great rates on both Certificate of Deposit and Money Market accounts, as well as traditional savings accounts for our customers. We’d love to help you open a new account today, so schedule an appointment to come into a branch or have a Zoom appointment today. Or, if you’re still not sure, you can learn more about these accounts and the rates we offer here!

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