How to Compare Money Market & CD Rates
Certificates of deposit and money market deposit accounts offer consumers a safe place to put their money. When comparing the rates of return, you need too make sure you look at more than just the interest rate.
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Annual Percentage Yield
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The annual percentage yield measures the interest rate after adjusting for interest compounding. Most money market deposit accounts compound interest monthly while certificates of deposit may compound interest less often, so the interest rates may not provide an accurate comparison.
Rate Flexibility
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Certificates of deposit do not change during the term of the CD. If interest rates fall, you benefit because you have locked in a higher rate. If rates rise, you are out of luck because you must keep the lower rate. Money market deposit accounts change their interest rates as market rates change.
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Time Frame
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Certificates of deposit require that you keep the money in the account for a specified period of time. If you withdraw the money early, you will have to pay an early withdrawal penalty. Money market accounts do not have early withdrawal penalties.
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