Savings Accounts, CDs and Money Market Options Compared

If you need to reach your cash at any time, a high-yield savings account or a money market account at an insured bank or credit union is usually the simpler choice. If you can leave money alone until a set date, a certificate of deposit (CD) can lock in a rate for that period. A money market fund is different from all three: it is an investment you buy through a brokerage or fund company, and it has no FDIC or NCUA insurance. This guide compares the four on insurance, access, rates and penalties, and then walks through a CD ladder with real numbers.

The four options side by side

The first three are deposits. The fourth is a security. That one difference explains much of what follows.

High-yield savings accounts

A high-yield savings account is an ordinary savings deposit that pays more than the typical savings rate. "High-yield" is a sales label, so the useful question is how the rate compares with what banks pay on average.

The FDIC publishes that average every month. In its table dated October 19, 2026, the national rate for savings accounts was 0.38%, and for money market deposit accounts it was 0.63% ^[7]. These figures are averages across banks and credit unions, weighted by each one's share of deposits, and the savings figure is for a $2,500 balance ^[7].

Here is what the gap means in dollars. On $10,000 held for a year:

• At 0.38%, you would earn about $38.
• At a hypothetical 3.50%, you would earn about $350.

The 3.50% figure is an illustration, not a quote. Shop current offers and check the date on any rate you read.

What can change after you open the account

Savings rates are variable. Under the federal Truth in Savings rules, a bank must disclose that the rate and the annual percentage yield (APY, the yearly return including compounding) can change, how it sets the rate, and how often it may change ^[3]. A bank can pay a high rate today and cut it next month.

Withdrawal limits

For years, Regulation D capped "convenient" withdrawals and transfers from savings at six per month. On April 24, 2020, the Federal Reserve announced a rule that removed that cap from the definition of a savings deposit and let banks stop enforcing it ^[8]. The change allowed banks to drop the limit; it did not require them to. Read your account terms for any monthly cap or excess-transaction fee.

Taxes

Interest on savings is generally taxable in the year it is credited to your account and you can withdraw it without a penalty ^[9]. If you earn $10 or more of interest, you should get a Form 1099-INT, but you owe tax on the interest even if no form arrives ^[9].

Money market accounts and money market funds

The names are almost the same. The products are not.

Money market accounts

A money market account is a deposit account at a bank or credit union, insured by the FDIC or NCUA up to $250,000 for the same owner or owners ^[4]. These accounts tend to pay more than basic savings accounts. In exchange, they often limit how many check, debit card or electronic payments you can make, while in-person, ATM, mail and phone withdrawals are usually not limited ^[4]. Some require a minimum deposit ^[4].

Use one when you want a savings rate plus the option to write an occasional check from the same account.

Money market funds

A money market fund is a type of mutual fund. It buys short-term debt such as Treasury bills, commercial paper (short-term company IOUs) and CDs ^[6]. Funds must keep the weighted average time to maturity of their holdings at 60 days or less ^[6]. Retail funds are managed to hold a steady share price of $1, and the payouts you receive track current short-term rates ^[6].

A fund's value can still fall. During the 2008 financial crisis, the Reserve Primary Fund dropped below $1 a share after Lehman Brothers failed, then froze withdrawals and was wound down ^[6]. The SEC has since tightened credit, maturity and liquidity rules, and it adopted further reforms in 2023 ^[6].

Two protections are often confused here:

• FDIC or NCUA insurance does not cover money market funds, even when a bank sells them ^[1][6].
• SIPC protection covers securities in a brokerage account up to $500,000 if the brokerage firm fails ^[6]. The CFPB points readers to SIPC for the case where the brokerage firm itself fails ^[4]. It is not a promise that the fund keeps its value.

Funds come in a few types. Government funds hold mainly federal government debt, prime funds hold mainly corporate debt, and tax-exempt funds hold state and local debt whose income is generally free of federal income tax ^[6]. For tax purposes, payouts from a money market fund are generally reported as dividends, not interest ^[10].

A money market fund often makes sense for cash that already sits in a brokerage account, waiting to be invested.

Certificates of deposit

With a CD, you agree to leave your money in place for a set term, and taking it out early means a penalty ^[5]. The CFPB suggests comparing three things: the term, the rate and the size of the early withdrawal penalty ^[5]. Bank CDs are insured by the FDIC and credit union CDs by the NCUA, each up to $250,000 ^[5]. Credit unions often call them share certificates, and NCUA coverage extends to them ^[2].

What CDs pay on average right now

In the FDIC's October 19, 2026 table, the national averages were ^[7]:

On these averages, longer terms did not pay more than the 12-month CD. That pattern changes over time, so check it before you commit to a long term.

Early withdrawal penalties

Before you open a CD, the bank must tell you whether a penalty applies, how it is figured and when it is charged ^[3]. The rules list examples of what a penalty can be: a flat dollar amount, a set number of days' interest, a lower rate on what stays in the account, or the loss of an opening bonus ^[3]. There is also a federal floor. If you take money out within six days of depositing it, the bank must charge at least seven days' simple interest on the amount withdrawn ^[11].

Worked example. You put $10,000 in a 12-month CD at a hypothetical 4.00%, and the penalty is 90 days of simple interest.

• Penalty: $10,000 × 4.00% × 90 ÷ 365 = about $98.63.
• If you close the CD after 60 days, you have earned about $65.75 ($10,000 × 4.00% × 60 ÷ 365).
• The penalty is larger than the interest earned. If your terms let the bank take the difference from your deposit, you would get back about $9,967.

So a CD can lose principal if you break it early. Read the penalty terms before you pick the term.

Renewal and the grace period

The bank must also disclose whether the CD renews by itself at maturity and, if it does, whether you get a grace period and how long it is ^[3]. If you miss that window, your money may roll into a new CD at whatever rate the bank then offers.

Taxes on CD interest and penalties

For CDs that pay interest at least once a year, or that mature in one year or less, you generally report the interest when you receive it or can withdraw it without a large penalty ^[10]. CDs that defer interest for more than a year follow different rules. If you pay an early withdrawal penalty, your Form 1099-INT shows it in box 2, and you can deduct it on Schedule 1 (Form 1040), line 18 ^[10].

How a CD ladder works: a worked example

A CD ladder splits your money across CDs that end at different times, so part of it becomes available on a regular schedule without a penalty.

Say you have $20,000 you will not need soon, but you want access to some of it every year. You split it into four $5,000 "rungs." The rates below are hypothetical and chosen to keep the math simple.

Here is how it runs:

1. At the end of year one, rung 1 matures with $5,180.
2. If you do not need the money, you put it in a new 4-year CD. It now ends after rung 4.
3. Each later year, the next rung matures and you repeat the step.
4. After three years, every rung is a 4-year CD, yet one of them matures every 12 months.

What you gain:

• About one quarter of the money is free each year with no penalty.
• You do not have to guess the single right moment to lock in a long rate.
• If rates rise, each maturing rung renews at the new rate.

What to watch:

• When longer CDs pay less than shorter ones, as the FDIC averages above showed in October 2026, a long ladder can lower your return. A shorter ladder can fit better then, such as rungs of 3, 6, 9 and 12 months.
• Each rung must stay within your insurance limit at its bank. Deposits you hold in the same ownership category at the same bank are added together ^[1].
• Set a calendar reminder for each maturity date so a rung does not renew by default.

Matching the account to the job

Common mistakes

• Treating a money market fund as insured. It is an investment with no FDIC or NCUA coverage ^[1][6].
• Leaving savings at a rate near the national average. At 0.38%, $10,000 earns about $38 a year ^[7].
• Breaking a CD in its first months. As the example shows, the penalty can exceed the interest earned.
• Missing the grace period. An automatic renewal can lock money into a new term at a lower rate ^[3].
• Going over $250,000 at one bank in one category. The excess is not insured ^[1].
• Forgetting the tax bill. Interest counts as income even without a Form 1099-INT ^[9].

When to get professional help

A fee-only financial planner or a tax professional can help if you hold more than $250,000 in cash, if accounts are held in a trust, or if you are comparing tax-exempt money market funds with taxable options. The trade-off depends on your tax bracket and your state.

Frequently asked questions

Can I open a CD at a credit union instead of a bank? Yes. Credit union certificates are insured by the NCUA's Share Insurance Fund up to $250,000 per member-owner, the same standard limit as FDIC coverage ^[2].

Does the FDIC rate table show what I will actually be offered? No. It shows deposit-weighted national averages for common account types and terms ^[7]. Individual banks pay more or less.

Is my money market fund covered if the fund loses value? No federal guarantee applies. SIPC protection is tied to the brokerage firm failing ^[4][6], and a fund's share price has fallen below $1 before ^[6].

Your next step

Find the APY on your current savings statement and compare it with the FDIC's latest national rate table. If you are close to the 0.38% average, list two or three insured banks or credit unions, check that each is federally insured, and read their rate and fee disclosures before you move money. Then decide which part of your savings is truly long-term, and consider a short CD ladder for that part. For more on insurance limits, see our guide to how FDIC insurance works.