If you keep your savings in an interest-bearing account, you're probably keeping a close eye on what moves the Federal Reserve is making in terms of rates. In late 2023 and early 2024, the federal funds rate sat at its highest level in over a decade, but it fell in late 2024. And, experts have been expecting the Fed to conduct another rate drop in the months ahead. 

While this is great news when you're borrowing, it's less ideal for your savings. When rates decline, you may not be able to earn as much on your interest-bearing accounts as you have for the past couple of years. That said, you can still earn more than you would in a traditional savings account by relying on products like money market accounts and certificates of deposit (CDs). 

These two tools have some similarities, but they also have some big differences, and one or the other may make more sense now and in the future. So, to help you create a plan for your savings, we gathered insight from personal finance experts on what to consider about money market and CD accounts now.

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CD vs. money market account: What experts say to consider now

CDs and money market accounts are both interest-bearing deposit accounts you can find at banks and credit unions, and both offer higher rates than you'd find with a traditional savings account. However, the amount you can earn varies based on the current rate landscape.

"When interest rates are high or trending higher, these holdings pay better interest rates to the consumer, with less risk than other investment choices," says Regina McCann Hess, a certified financial planner (CFP) and president of Forge Wealth Management. "The past few years have been a relief for those looking to earn interest on their cash, like investments such as CDs and money market accounts."

While they'll both help you earn interest, money market accounts and CDs function very differently. Money market accounts work more like high-yield savings accounts. The accounts typically have variable interest rates, so if the wider rate landscape rises or falls, so will the rate on your money market account. You can also choose to withdraw your money at any time without penalties or fees.

Money market accounts have some withdrawal restrictions, though. For example, you may only be able to make a certain number of withdrawals per month. But you can also access the money in your account with a debit card or check, similar to how you would a checking account.

CDs, on the other hand, have fixed interest rates and set terms, usually ranging from a few months to five years. For example, if you open a 12-month CD, you'll earn a fixed interest rate on the money in your CD for the full year. You're protected from interest rate drops, but you'll also likely pay an early withdrawal penalty if you take your money out before the term ends.

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When to consider a CD

Because of their set terms and early withdrawal penalties, CDs typically aren't ideal for money you need to be readily available. Instead, they may be better suited for financial goals with a specific timeline where you can lock up your money for a few months (or a few years) and know you won't need it.

"Looking at the near future, CDs are ideal for people saving for an 'event' like a home purchase, a wedding, a new car, or a home remodel," says Mary Grace Roske of CD Valet. "You want to earn decent interest, but you are not willing to put your principal investment at risk because the time horizon is too short. 

"CDs, in this case, also serve the dual purpose of budget management," says Roske. "With the early withdrawal penalty in place, you'll be less tempted to want to tap into those funds on a whim. CDs instill greater discipline into saving money."

CDs may also be a worthwhile choice if interest rates are expected to drop. After all, CDs have fixed interest rates, so if you put your money into a 5-year CD and interest rates dip, you'll continue earning the same higher rate as the day you opened your CD.

Don't forget about those early withdrawal penalties, though. If you open a CD to get a higher interest rate and then have to pull your money early, you could sacrifice a solid chunk of your interest earnings.

When to consider a money market account

While CDs offer fixed interest rates, which can be especially attractive when rates are expected to drop, money market accounts come with increased liquidity.

"If rates are equal and all else is constant, I lean toward money market accounts because of the liquidity – having flexibility in today's fast-moving market can be a big advantage," says Adam Ackerman, president of BNA Wealth.

The liquidity that money market accounts offer may be especially important for your emergency savings. You can take money out at a moment's notice and not have to worry about penalties or fees. And, if you're already facing a financial emergency, every extra dollar counts.

You may also want to opt for a money market account over a CD in a rising-rate market. If you expect that interest rates six months from now will be higher than they are today, you may not want to lock your savings up in a CD with a fixed rate. You can watch your money market account rate grow instead and then consider locking in your rate with a CD later on.

Savings alternatives to consider

In addition to money market accounts and CDs, high-yield savings accounts also offer a solid way to earn interest on your cash. These accounts have variable rates, similar to money market accounts. However, they typically aren't subject to high minimum deposit requirements like money market accounts sometimes are. And, depending on your bank, you may be able to earn just as much by putting your money in a high-yield savings account.

And if you're saving for long-term goals, you may want to consider a more aggressive saving strategy with a higher potential return.

"Many investors find it lucrative to use MMAs or CDs to invest their "rainy day" funds, which may cover unexpected major expenses, while investing for the long run with risky assets like stocks, bonds, or mutual funds," says Steve Jones, a former financial analyst and a professor of finance at the Indiana University Kelley School of Business in Indianapolis. "There is more risk, of course, in this, but the historical record indicates it will pay off in the long run."

According to Jones, a money market fund may be a good compromise if you want a higher return without taking on too much risk. Money market funds aren't FDIC-insured like money market accounts and CDs, but they invest in short-term debt securities that are generally safe.

The bottom line

Choosing the right savings tool can help you maximize the return on your cash. While you won't get rich from the interest in a bank or credit union deposit account, you can certainly earn enough to reach your goals more quickly. 

But if choosing the right account feels too overwhelming, there's some good news: Both a money market account and a CD — as well as other tools like high-yield savings accounts — can help you reach your goals. Taking your money out of a traditional bank savings account and putting it into a high-yield option like these is the most important step.