A certificate of deposit and a money market account are the same product on the insurance line and different products on every other line. Both are bank deposits, and the FDIC lists both — "money market deposit accounts (MMDAs)" and "time deposits such as certificates of deposit (CDs)" — among what it covers, to the same $250,000 limit. The CD fixes a rate for a stated term and charges a penalty to leave early. The money market account leaves the money reachable — transfers, often cheques or a debit card — at a rate the bank may change on any day with no advance notice required. The CD pays more for the lock, or should; the money market account pays less for the exit. Whether the extra is worth having depends on one thing you can read before you sign, the penalty schedule, and one thing nobody can know, which is where the variable rate goes next.
This page prices the lock on illustrative numbers and prints no institution's rate. The FDIC's dated national average for money market accounts is on the money market hub, once, for the whole cluster. And if your real comparison is a savings account against a CD against Treasury bills, HYSA vs CD vs T-bills already runs that after-tax arithmetic; this page does not repeat it.
The two products on one page
| Money market account | Certificate of deposit | |
|---|---|---|
| Regulatory category | A savings deposit under Regulation D, which names the "money market deposit account (MMDA)" explicitly | A time deposit under Regulation D; a time account under Regulation DD |
| Rate | Variable, usually tiered by balance; may change without advance notice | Fixed for the term, and the term must be disclosed |
| Getting money out | Transfers and withdrawals permitted; the bank may set its own limits and reserves a right to seven days' notice | None before maturity without a penalty; the legal floor is seven days' simple interest on money out in the first six days |
| Maturity | None | A dated maturity, usually with automatic renewal and a short grace period |
| Insurance | FDIC at a bank, NCUA at a credit union; $250,000 per depositor, per institution, per ownership category | The same |
| Tax on interest | Ordinary income | Ordinary income; a forfeited penalty is deductible |
Every row below the first is a place the two part company; the next three sections take them in the order they cost money.
What the lock is, in the regulation's words
A certificate is a time deposit. Regulation D defines one as a deposit the depositor "is not permitted to make withdrawals from within six days after the date of deposit unless the deposit is subject to an early withdrawal penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit". That sentence is the whole legal minimum. Seven days' interest is the floor; the penalty you actually face — thirty days' interest, or six months', taken from interest earned or reaching into principal — is a term of the contract, and Regulation DD requires the bank to disclose before you open the account "a statement that a penalty will or may be imposed for early withdrawal, how it is calculated, and the conditions for its assessment". The penalty page sets out the three shapes that clause takes at large online banks; this page borrows its arithmetic.
A money market account is a savings deposit: an account on which the depositor "may at any time be required by the depository institution to give written notice of an intended withdrawal not less than seven days before withdrawal is made", and which "is not payable on a specified date". The bank holds a right to seven days' notice that it almost never uses, and the account has no maturity. The six-transfer rule that used to sit inside that definition was deleted by the Federal Reserve in April 2020; the current text allows transfers "regardless of the number of such transfers and withdrawals". But the Fed's own FAQ says the change permits banks to drop the limit and "does not require depository institutions to do so"; banks were free to keep it, and some did. Your account's transfer limit is a line in the agreement, not a matter of law. How a money market account works covers the access features.
The rate: fixed against variable, and who may change it
Regulation DD calls a money market account what it almost always is, a variable-rate account: "an account in which the interest rate may change after the account is opened". The bank must tell you at opening that the rate may change, how it is determined and how often; where the account is tiered — "two or more interest rates that are applicable to specified balance levels" — the tiers are part of that disclosure. What the bank need not do is warn you. The 30-day advance notice Regulation DD requires for changes that reduce your yield carries an exception for "changes in the interest rate and corresponding changes in the annual percentage yield in variable-rate accounts". A cut can take effect the day it is decided. You find out from the statement.
A certificate is a fixed-rate account, and its disclosure must state "the period of time the interest rate will be in effect": the term. For that term the rate is a contract. That, and only that, is what the spread buys. Both figures are annual percentage yields calculated under the same rule, so they are comparable on the day you read them; the catch is the word day. The money market figure is a snapshot the bank may re-take tomorrow. The certificate's is the same snapshot, frozen.
The spread the lock has to earn
Every figure in this section is illustrative. $10,000; a money market account at 3.00%, assumed to stay there all year — the one assumption that never holds, and the next section's subject; a twelve-month certificate at 4.00%; simple interest throughout, so a full year on the certificate is $400 and on the account $300. The penalty is days of simple interest on the amount withdrawn, at the certificate's own rate: $32.88 for 30 days, $98.63 for 90, $197.26 for 180.
Held to maturity the certificate wins by $100 before tax, about $78 after tax at an illustrative 22% marginal rate. That is the prize. The question is what it costs if the date moves.
The certificate against the account, exit by exit (illustrative rates)
A twelve-month certificate with a 90-day penalty, left early, against the account over the same months:
| Leave at | CD interest earned | CD net of 90-day penalty | Money market account at 3.00% (illustrative) | CD ahead by |
|---|---|---|---|---|
| Month 3 | $100.00 | $1.37 | $75.00 | −$73.63 |
| Month 6 | $200.00 | $101.37 | $150.00 | −$48.63 |
| Month 9 | $300.00 | $201.37 | $225.00 | −$23.63 |
| Month 11 | $366.67 | $268.04 | $275.00 | −$6.96 |
| Month 12, maturity | $400.00 | $400.00 | $300.00 | +$100.00 |
Read the last column. At a one-point spread and a 90-day penalty, there is no month in the year at which leaving the certificate early beats having held the money market account. Even at month eleven the account is ahead. The certificate wins on one day, maturity, and loses on all the others. With a 30-day penalty the certificate pulls ahead from month four. With a 180-day penalty it would need nearly two years to catch up — longer than its own term — which is to say it never does.
The spread the lock needs, by exit month (illustrative rates)
Turning that round: how much more than the account's 3.00% must the certificate pay for an early exit at a given month to break even? The penalty scales with the certificate's own rate; the arithmetic is in the editor's notes.
| Exit at | 30-day penalty | 90-day penalty | 180-day penalty |
|---|---|---|---|
| Month 3 | 1.47 points | none works | none works |
| Month 6 | 0.59 points | 2.92 points | none works |
| Month 9 | 0.37 points | 1.47 points | 5.76 points |
| Month 11 | 0.30 points | 1.10 points | 3.49 points |
| Month 12, maturity | any spread | any spread | any spread |
"None works" means the penalty consumes all, or essentially all, of the interest earned by that month, so no plausible rate makes the exit pay. A mild penalty makes the lock cheap to escape: at 30 days, a third of a point justifies a certificate you might leave in month nine. A 90-day penalty, which is common, wants a spread larger than most banks put between their money market account and their one-year certificate unless you are nearly sure of the date. A 180-day penalty turns a one-year certificate into one you must hold to the day. The penalty schedule, not the rate, decides which column you are in, which is why the penalty page says to read it first.
The symmetrical bet
The tables held the money market rate at 3.00% for twelve months. Money market rates are not held anywhere: the account's rate follows what the bank decides to pay, which follows the market, and the certificate's follows nothing.
So the lock is a bet, and it is symmetrical. On the same illustrative numbers, suppose the bank cuts the money market rate to 2.00% at the half-year: the account earns $250 for the year and the certificate's $400 beats it by $150, not $100. Suppose instead the bank raises it to 4.00% at the half-year: the account earns $350 and the certificate still wins, by $50. The account would need lifting to 5.00% from month seven — a two-point rise on a three-point rate — merely to tie. A one-point spread is a lot of insurance against a cut and a modest amount of forgone upside against a rise.
None of that says which happens. A lock wins if rates fall and costs if they rise, and nobody knows which; a page that told you it did would be selling something. The honest use of the certificate is to buy a rate you can rely on for money whose date you can rely on, and to let the money market account carry the money whose date you cannot.
Two products in the middle
A no-penalty certificate keeps the fixed rate and drops the penalty, at a lower rate — the exit is paid for every day instead of at the door. In the illustration, a no-penalty certificate at 3.25% sits above the account's 3.00% and well below the standard certificate's 4.00%: over eleven months, $297.92 against $275.00 against $366.67. After the first six days, which the Regulation D definition of a time deposit obliges it to lock, it is as liquid as the account and its rate cannot be cut. The discount is worth paying when there is a real chance the date moves, which is exactly what the tables above show. The no-penalty page prices it, including the all-or-nothing withdrawal clause the bank checked there attaches — full balance or nothing — which other issuers may or may not.
A ladder splits the deposit across staggered maturities. Four rungs of $2,500 maturing three months apart keep a quarter of the money within three months of penalty-free access at all times, and an unexpected need costs at most one small penalty on one rung. The ladder guide sets it up. The money market account remains the place for the part that must be reachable today.
Insurance: parity, with three catches
On the insurance line the two products are identical. Both are deposits; the FDIC covers them at $250,000 per depositor, per insured bank, per ownership category, principal and accrued interest together, and since 1933 no depositor has lost a penny of FDIC-insured funds. The catches apply to any deposit and bite harder when you hold both products at once.
They count together. A $150,000 certificate and a $120,000 money market account in your sole name at the same bank are $270,000 in one ownership category at one bank, and $20,000 of it is uninsured. Neither account is over the limit; the category is. Are money market accounts FDIC insured and are CDs FDIC insured carry the categories and the two-brands-one-charter trap, and agree with each other on every figure.
A credit union is a different agency. A share certificate or a money market account at a federally insured credit union is not FDIC-insured, because a credit union is not a bank. It is insured by the National Credit Union Administration through the National Credit Union Share Insurance Fund, backed by the full faith and credit of the United States, to the same $250,000 figure. Equivalent protection, separate rules; an edit that carries the FDIC's name across to a credit union is wrong.
A money market fund is not either of these. A money market fund is a mutual fund, not a deposit, not insured, and it can lose value. If the thing you are weighing against a certificate is held at a brokerage, money market vs high-yield savings makes the distinction that has to be right before any of this page applies.
Maturity, which is the one thing the account cannot do to you
A money market account has no maturity date. A certificate has one, and at most banks it renews automatically into the same term at whatever rate is on offer that day. Regulation DD requires the disclosure to say whether it renews and how long any grace period is; for any automatically renewing certificate longer than a month the bank must send the renewal notice at least 30 calendar days before maturity, or 20 calendar days before the end of a grace period of at least five calendar days. For terms of a year or less the notice may be abbreviated — maturity date, the new rate if known, and any changed terms — but its timing is the same. Miss the grace period and the money is locked again, at a rate you did not check, behind a fresh penalty. The account's equivalent failure is quieter: a rate cut you did not notice on an account you stopped checking. The certificate needs a date in your own calendar two weeks before maturity; the account needs its rate read against the official baseline on the hub a few times a year.
Which one for which money
Money with a date and an amount — a tax bill in April, a house deposit in nine months — is what a certificate is for, once the penalty schedule has been read and the date sits later than the crossover month for that schedule.
Money without a date — the reserve that has to be there on any given Tuesday — belongs in the money market account or a savings account, and the rate is the second question. The lock's price is highest exactly when the date is least certain.
Money in between, whose date is real but movable, is the case for a no-penalty certificate or a ladder, and it is the case most people actually have.
Where the balance is large enough that the after-tax spread is real money, Treasury bills enter the comparison — no penalty, no state income tax on the interest — and HYSA vs CD vs T-bills is the page for that. And before any of it, the certificate's rate has to be competitive in the first place, which is what which banks have the best CD rates teaches you to check without trusting a table.
What to actually do
Read the certificate's penalty before its rate. Days or months of interest, simple or not, on the amount withdrawn or the whole balance, and whether it can reach principal. That line decides which column of the spread table you are in.
Find the crossover month for that penalty and compare it with your date. At a one-point spread, a 30-day penalty is escapable from month four, a 90-day one only at maturity, a 180-day one never. If the date could move earlier than the crossover, the certificate is the wrong product at any rate.
Compare the two rates on the same day, at the same bank, at your balance. The money market rate is tiered and variable; make sure the figure you are comparing is the one your balance earns, and know that it can change without notice.
Decide whether you want insurance against a cut. That is what the spread buys. If a cut to the money market rate would not change your plans, the lock is buying you less than it costs on any early exit.
Add the two balances together for insurance. Same bank, same ownership category, one $250,000 limit. Bank deposits are covered by the FDIC; credit union shares by the NCUA; a money market fund by neither.
Put the maturity date in your own calendar. Two weeks early. Automatic renewal into an unread rate is the certificate's quiet failure and a silent rate cut is the account's; both are avoided by a diary entry, not a better product.
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