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Ask the Expert: Money Market Account or CD?

June 15, 2010

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: On $10,000, is it better to buy a CD or a money market account?

A: To answer that question, you should consider flexibility of access and bank rates.

While a money market account is not designed to be used for frequent access like a checking account, it does not lock your money up for a specified period of time like a CD does. Therefore, if you may need to access your money in the near-term, or if your needs are somewhat unpredictable, you'd probably be better off with a CD than with a money market account. The flexibility of a money market account is also useful if you plan on making incremental additions to the account on a regular basis.

If you are confident you won't need the money for a specific period of time, whether it's a few months or a few years, committing to a CD shouldn't be a problem. In that case, rates become the primary consideration.

According to national averages from the FDIC, money market accounts for non-jumbo deposits (i.e., less than $100,000) recently were yielding about the same as a 6-month CD. So, if you can afford to lock your money up for longer than six months, you should generally find higher bank rates in CDs than in money market accounts.

However, if you think bank rates are likely to rise, you would want to shy away from a long-term CD, in favor of money market rates that will tend to rise along with the overall market. Also, if you shop for money market rates and CD rates on MoneyRates.com, you are likely to find rates well above the national averages. This could change the trade-off between CDs and money market accounts for you.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the lower left.

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