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About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Benefits of Short-Term CDs Over Money Market Accounts?

With the recent rate hikes that we have seen this year on internet savings and money market accounts, I'm wondering if short-term CDs are attracting any money. An important advantage of a certificate of deposit over a savings account is suppose to be a higher rate. This makes sense since the depositor is giving up some liquidity with the CD. However, in today's awful interest rate environment, short-term CDs don't have much of a rate advantage over savings and money market accounts. Below are some examples of the best rates available for money market and savings accounts and short-term CDs.

Money Market & Savings Account Rates as of 8/10/12

  • 1.30% APY money market account at UFB Direct
  • 1.25% 6-month intro rate money market ($50K max) & checking ($100K max) at EverBank
  • 1.05% APY savings account at CIT Bank
  • 1.05% APY money market account at Incredible Bank

Short-Term CD Rates as of 8/10/12

I consider the 24-month and 18-month CDs as more of a mid-term CD than a short-term CD, but I included them to show that those rates aren't much higher than the 1-year terms.

As you can see, these CDs don't have much of a rate advantage over the money market and savings accounts. The main advantage of the CDs is that you don't have to worry about rate cuts until maturity. However, even if the savings account rate falls, the average rate over a year probably won't be that much lower than the CD rate. Even if the average rate is 20 basis points lower, that's only $20 for a $10,000 balance over one year. You have to ask yourself if that slightly higher interest rate offsets the reduced liquidity of the CD.

The liquidity feature of savings and money market accounts may not be too important if you don't need the money for a while. However, it can be important if you want to take advantage of a good CD deal that arises. The CD deal may end before your short-term CD matures, and if you break the CD early, you'll be hit with an early withdrawal penalty. In addition, it can take several days to close the CD and move the funds into a liquid account. The best deals can often disappear in just a few days.

With the current rates, I see little advantage of choosing short-term CDs over money market or savings accounts.

If You Have Decided on Short-Term CDs

If you have decided on a short-term CD with a term under 1 year, don't forget Ally Bank's 11-month No Penalty CD. This rate is higher than the vast majority of 6-month and 9-month CD rates. Its no-penalty feature gives the CD holder the ability to make this into any term he or she wants from 7 days to 11 months.

If you have decided on a CD with a 1- or 2-year term, don't forget about CIT Bank's Achiever CDs. These allow an add-on deposit and a rate bump. The only downside is a $25K minimum deposit.

Other Alternatives for Higher Rates

The other alternatives if you want higher yields from a bank or credit union account are long-term CDs and high-yield reward checking accounts. Please refer to my recent posts on long-term CDs and reward checking accounts for the pros and cons of these accounts.

Related Pages: CD rates, savings account, money market accounts

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Anonymous   |     |   Comment #1
Given today's electronic banking, a real advantage with a savings account over a CD and even over a MM is not having to store and worry about MM checks being lost or stolen, etc., and have a reasonably quick access to funds via transfering funds via electronic transfer or even bill pay into a checking account when you need to increase your checking account balance for one reason or another. This applies to transfers to another financial institution and you can use this method online about everywhere and even over the phone with some institutions (e.g., as I recall, with Ally's savings account).  

Anonymous   |     |   Comment #2
I actually like the checks.  I look for who pays me the highest rate which is usually a plian savings.  I can deposit a check from my money market account at a Chase ATM to my Chase regular checking account and the funds are instantly available in my regular checking account.  The money marker is not with Chase.  Has saved me a few times when I overdrew my account and was able to catch it.  I have a few savings accounts.
Anonymous   |     |   Comment #3
#2, As with many savers in the nation, there's no access where I live to Chase banking services.  A correction to my earlier post: I believe it's Discover Bank and not Ally Bank that provides for free telephone transfers in addition to online transfers. This can sometimes be a useful thing, and, as I recall, Discover also had 24/7 phone access to a representative.
Anonymous   |     |   Comment #4
#3  Other banks can provide the same service at ATM's.  I no longer go into the bank to deposit checks or cash.  All handled at the ATM.  And most checks clear instantly (Business days).   It is also faster (No forms to fill in and can do 7x24 This is not unique to Chase. Haven;t been inside a bank since October 2011 and that was the last time I deposited a check.
Anonymous   |     |   Comment #5
#4. I agree re TAMs and somehow misread the comment (#2) re Chase. My ideal arrangement has been a primary, free checking account with direct deposits and automatic payments of recurring charges at a credit union (my credit union's big but not local), a secondary, small free 'eChecking" account at Bof A (with local ATMs and branches): "B of A's eChecking"--which is free if your transactions are at ATMs, online or via paper check and stay clear of tellers for the transactions which can be done without using a teller, and a savings account w/o checks at a higher rate (usually with a bank that's primarily an "internet" bank). The BofA eChecking account has a unique plus with that bank's membership in the Global ATM Alliance with surcharge-free access to lots of ATMs of banks in Europe--very helpful even if you/re not that frequent a traveler there. 
ricsue   |     |   Comment #6
TIAA still has the 1.25% rate on Money Market as well.

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