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The announcement in January that the Federal Reserve was pausing interest rates may have been unwelcome by borrowers, but it was greeted more warmly by savers. With a higher federal funds rate, savers are more likely to secure higher interest rates on interest-earning vehicles like high-yield savings, certificate of deposit (CD) and money market accounts. Some of these returns can easily outpace the rate of inflation, giving savers a smart and simple way to combat today’s elevated costs. And with inflation rising steadily over the past four months, this is still a critical consideration for many Americans.
To improve the chances of their savings success, however, they should closely compare their options before moving their funds. While a CD account can still be advantageous for many, a money market account could also be worth exploring. But which is better to open now, in the evolving interest rate climate of March 2025? That’s what we’ll explore below.
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CD or money market account: Which is better now?
While there is no definitive answer to this question, as every saver’s circumstances are different, many may prefer to open a CD, specifically. Here’s why:
CDs tend to have higher interest rates
While not always the case, overall, CD accounts tend to have higher interest rates than money market accounts. Right now, CD rates generally top out around 4.50%, according to Bankrate, while money market account rates are around 4.46% or lower.
While those few basis points may not seem like a lot on paper, that could add up to a significant amount over time, particularly for those savers who are looking for long-term CDs. Still, money market account rates are competitive, so it’s smart to shop around online for both account types to see which one is truly able to offer you the greatest return.
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CD rates are fixed
Arguably, the biggest reason why a CD is better than a money market account now comes down to the way the rates on each are structured. CD account rates are high now, as noted, but they’re also fixed, meaning that savers can rely on predictable returns no matter what happens in the market during their CD term.
Money market account rates are variable, however, and subject to change over time. Right now, that may not be a concern, but if inflation can resume its downward trend and if interest rate cuts resume later in 2025, the returns on money market accounts will decline, while CDs opened this March will still be earning today’s elevated rate.
What about high-yield savings accounts?
High-yield savings accounts are also worth considering now as they have rates almost identical to the highest CDs and money market accounts. Unlike money market accounts, however, they don’t have the same check-writing functions, so they may be less useful, even if rates are similar. And while they may be elevated for now, thanks to the variable rate of a high-yield savings account, those returns could also soon decline if additional rate cuts are issued, quickly making this a less profitable home for your money.
The bottom line
With interest rates relatively high on both CDs, money market accounts and high-yield savings accounts, interested savers should closely compare the pros and cons of each to determine which is most fitting for their financial situation and long-term goals. For many, a CD with a higher and fixed interest rate, may be optimal. While others may feel that a money market account is more advantageous while a third group of savers may benefit from high-yield savings accounts. So consider all account types before getting started. Ultimately, you may find that a mix of all three accounts is your optimal solution.
