Share Certificates, Money Market Accounts and Savings: How to Choose

November 3, 2022 by Chevron Federal Credit Union

With Financial Planning Month in the rear-view mirror, it’s the perfect time to keep the momentum going by examining your financial plans and goals.

One big step to achieving your financial goals is making your money work for you. With worries over rising inflation and a potential recession on the horizon, it is easy to feel emotional about your cash flow and investments. Often, in times like these, people feel tempted to pull out their investments and store their available cash in their checking accounts.

However, there are several savings options that can help your money earn interest over time. Savings accounts, share certificates (banks call these certificates of deposits, or CDs) and money market accounts all let you build toward future goals with steady consistency. Here is what you need to know:

Savings Accounts

A savings account is a convenient way to stash extra cash. Savings accounts are easy to open, often have low minimum open requirements and low minimum balance requirements. Plus, you’ll earn interest on anything you save away, unlike a checking account.

However, keep in mind that savings accounts may carry some usage restrictions. While you’ll likely receive an ATM card to make withdrawals, you may be limited to making a set number of withdrawals a month. You’ll also have to maintain a minimum balance to keep the account active. And the interest you earn may not be as high as other savings vehicles like a share certificate or money market account.

To get the most from their savings, many people choose to link their checking and savings accounts together for easy transfers and withdrawals — essentially making your savings account an interest-earning extension of your everyday checking account.

When to Get a Savings Account

Savings accounts are a practical way to earn interest on the cash you have set aside for short-term goals like building an emergency fund, preparing for holiday spending or saving up for a vacation. However, for long-term savings goals, you may earn a higher interest rate with other financial products such as share certificates or money market accounts.

Share Certificate

A share certificate is a type of savings account. Unlike a traditional savings account that allows you to add deposits — and make withdrawals — over time, a share certificate is “time locked.” When you open a share certificate, you make an initial deposit that is held for a set length of time before you can withdraw the funds. It’s worth reiterating that share certificates are similar to certificates of deposit, all credit unions refer to them as share certificates and they are insured by NCUA (CDs are backed by the FDIC).

On the plus side, a share certificate typically offers a higher interest rate than a standard savings account. If you are confident you can lock up your funds for the length of the share certificate — typically three to five years — you’ll earn a higher interest rate with minimal effort. On the downside, if you do need to withdraw the funds early, you’ll pay a penalty to do so, chipping away at any higher interest you may have earned.

You’ll also need to consider that share certificate rates are locked in. If rates go down during your holding period, you’ll come up ahead. If rates go up, you may lose out on interest you could have earned on that money. However, you may be able to mitigate the risk of interest rates going up by building a share certificate ladder — essentially opening several share certificates over time instead of one large share certificate at once.

When to Open a Share Certificate

You may want to consider opening a share certificate if you already have an emergency fund in place, have a set sum set aside and want to earn a steady interest rate on those funds. Generally, a share certificate is not an ideal savings vehicle for short-term savings goals or cash you may need access to, such as an emergency fund.

Money Market Account

Money market accounts combine some checking account and savings account features. With a money market account, you’ll typically earn a higher rate of interest than a standard savings account. You’ll also be able to make some withdrawals each month and have access to checks or a debit card.

However, unlike a checking account, there is typically a limit on how many withdrawals you can make each month from your money market account. And while the interest rate may be higher than a standard savings account, rates may not be as high as other savings vehicles, like a share certificate.

You also need to keep in mind that many money market accounts require a large initial deposit. You may also need to keep a larger minimum balance in the account.

When to Open a Money Market Account

A money market account can be a good option to use for an emergency fund or other short-term financial goal. Since you will be able to make some withdrawals without penalty, you’ll have access to your cash if you need it. However, for long-term goals, you may want to consider a financial vehicle that earns higher interest.

The Bottom Line

Keep in mind, you can open multiple savings vehicles. Depending on your needs, maintaining accounts for both short- and long-term goals can help you maximize how much interest you earn over time.

Curious about your options? Our MarketEdge Money Market Savings Account offers higher dividend rates, no minimum balance requirements to open or maintain, no monthly maintenance fees and access to checks and a debit card so you can have the best of both worlds.


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