What is the difference between certificate of deposit and money market account?

There are a number of investment options to choose from out on the market these days. And each of these options has varying degrees of returns and risk potential. Certificates of deposits or CD’s and money market accounts are two types of investment instruments. We shall now discuss the salient features of each of these two types of investments.

Security is one such feature which is important to any investor. In both the accounts, the principle amount is insured by the FDIC or federal deposit insurance corporation up to a limit of $250000. And money market accounts are insured under the national credit union administration.  The rate of return on a certificate of deposit is usually fixed for a certain principle and time period. But again there are other specialized certificates that offer varying rates of interests like step up or bump up CDs. Money market accounts on the other hand will promise you a certain rate of interest as a potential return. You could get anywhere up to 3% at times. But you will not be assured of this interest; instead the assured rate of return may be equivalent to a conventional savings bank rate of return. However, you will have a greater chance of getting a higher rate of return if the markets are doing well compared to a savings bank account with a fixed rate or a certificate of deposit with a fixed rate. Some CDs like the step up or bump up CDs almost behaves like money market accounts and gives you a lot of control over the quantum or interest that is assured.Then we arrive at liquidity. A certificate of deposit will not allow you any liquidity, which means that you cannot withdraw or deposit money into the account during the term. But there are special liquid CDs that allow you to make a certain number of withdrawals or deposits every time period. A money market account on the other hand will give you a checking account through which you can make a said number of withdrawals every time periods like a regular savings account. But again, if you fail to maintain a minimum balance or if you withdraw more than the agreed amount you will have to pay a penalty. The interest that you receive from a money market account is usually paid every month and the interest is then compounded. But the interest on the certificates of deposits can either be added to the account under special liquid CDs or paid to you under conventional CDs.