It also depends on when you'll need to access your money. You should be able to access funds from your savings account regularly — but if you need access to money from your 2-year CD before it matures, then you'll have to pay a fee. You can also continuously add money to your savings account, whereas most CDs block you from making additional deposits after opening the account. Like with a high-yield savings account, you may prefer a money market account over a CD if you want quick access to your money.
Money market account rates also fluctuate, so you may prefer a money market account if rates are rising, but a CD if rates are dropping. Many banks require higher deposits for money market accounts than CDs, which could affect your decision.
It's also good to remember that you can add more funds to your money market account over time, while a CD typically only allows an opening deposit. Instead, a CD is typically viewed as a type of savings account, and your potential for losses and gains — your risk — is much more limited.
Because the stock market is risky, experts generally don't advise investing money you'll need in the next five years. In the case of a stock market drop, you wouldn't have time to make up your losses.
If you need to access your money in a year and want a guaranteed rate of return, a 2-year CD is a better choice than a different type of investment account. One way to do this is through tax-advantaged retirement accounts, like a k or IRA, which grows your money over decades. It's a safe investment tool that may be a worthwhile option for people who are close to retirement age.
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This strategy gives you more flexibility and liquidity than if you chose a single long-term CD with a higher interest rate upfront.
You can still work toward the higher interest that longer-term CDs offer, but retain the option to take your cash out regularly if you need it, as shorter-term CDs mature. And to really maximize your earnings, shop around and begin building your ladder from different CD types and at different financial institutions that offer terms and rates that work best for you.
A ladder allows you to sidestep the inflexible nature of CDs. With this strategy, you can form a schedule to increase your liquidity while maximizing longer-term CDs that earn higher interest.
CD ladders are not ideal for savings you need to keep highly liquid, like your emergency fundwhich you should keep in a more accessible high-yield savings account. Then, set up your intervals so the CDs mature when you need to access that cash. Over the past few yearslong-term CDs with three- and five-year terms could earn nearly a full percent higher in interest than a short-term CD. The difference today is negligible, if it exists at all.
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