$7,500 CD vs. $7,500 high-yield savings account vs. $7,500 money market account: Which will earn more now?
Certificates of deposit (CDs). High-yield savings accounts. Money market accounts. All three of these accounts offer effective ways for savers to grow their interest and protect their principal. They all come with interest rates around 4% or higher right now. And, accordingly, they're often viewed as smart homes for those savers looking to deposit a large, five-figure amount of money.
But what about those savers with fewer funds to deposit? Let's say, for example, that you have $7,500 that you're looking to withdraw from a traditional savings account (with an average rate under 0.40%). Is it worth depositing this much money into one of these three alternatives instead? It still can be. And with the interest rate environment static now, but with the need for high-interest earnings savings vehicles pronounced, all three are worth serious consideration.
To better decide on the merits of each, it helps to understand the interest each account is capable of earning on a $7,500 deposit. Below, we'll crunch the numbers that savers need to know.
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$7,500 CD vs. $7,500 high-yield savings account vs. $7,500 money market account: Which will earn more now?
It's simple to calculate the interest-earning capacity of a CD account, as it has a fixed interest rate that will remain the same through the account's maturity date. High-yield savings and money market accounts, however, have variable rates that will change over time, making interest-earning calculations with both more speculative.
Here's how much a $7,500 deposit into each account type will earn over the next year, calculated using the top rates for each and the assumption that the variable rates will hold over the next 12 months:
- $7,500 6-month CD at 4.10%: $152.21
- $7,500 high-yield savings account at 4.03% after six months: $149.63
- $7,500 money market account at 3.90% after six months: $144.85
- Most profitable account: The CD account
- $7,500 9-month CD at 4.00%: $223.89
- $7,500 high-yield savings account at 4.03% after nine months: $225.56
- $7,500 money market account at 3.90% after nine months: $218.32
- Most profitable account: The high-yield savings account
- $7,500 1-year CD at 4.10%: $307.50
- $7,500 high-yield savings account at 4.03% after one year: $302.25
- $7,500 money market account at 3.90% after one year: $292.50
- Most profitable account: The CD account
In two of these three examples, the CD account will be more profitable. And, unlike the other two account options, the interest earned with the CD will be guaranteed, allowing savers to budget with precision. At the same time, the CD account rate won't change even if interest rates rise over the next year, while the high-yield savings and money market account rates likely will.
Savers will need to weigh all three of these account types closely, then, to better decide on which makes the most sense for their financial situation. After all, while the CD returns here are slightly better, the difference is negligible, and if you want to maintain access to your funds, the high-yield savings or money market account may be better alternatives.
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The bottom line
Over the next six to 12 months, a $7,500 CD will be more profitable than a high-yield savings or money market account. In between, however, a high-yield savings account may generate more interest while money market accounts won't be too far behind. Compare all three account types closely, then, before getting started. And don't discount the advantages of splitting your funds among two or even all three accounts, which will allow you to take advantage of the unique features each can still provide now.
