Financial products like money market accounts (MMAs), certificates of deposit (CDs), and annuities can help you invest in your future. MMAs are savings accounts you open with a bank or credit union. You’re not locked into a set term and can access these funds anytime, but MMAs typically offer lower interest in exchange for this flexibility.

CDs are different types of savings accounts that require you to invest your money for a set period. In exchange, you’ll earn higher interest at maturity.

Annuities — like those offered by Gainbridge — balance growth and flexibility. These insurance products are a secure way to save.

This article will compare money markets, CDs, and annuities in depth so you can decide which best fits into your investment strategy.

{{key-takeaways}}

Money market accounts explained

MMAs are a type of savings account that banks and credit unions offer. Think of them as a hybrid between a high-yield savings account (HYSA) and a checking account. You accrue interest on your deposits, like with a savings account, but you can also write checks and use a debit card, like with a checking account. However, some banks limit the number of withdrawals you can make per month.

Unlike other investments, MMAs don’t have a specified term. In that way, they’re closer to a HYSA than a traditional investment.

This flexibility makes MMAs ideal for investors who may need access to their funds and are satisfied with a modest return. If you anticipate a major expense within a few months, this may be your best option.

Pros of money market accounts

MMAs earn interest

MMAs allow you to earn interest on your deposit, and rates are typically higher than regular savings accounts.

You have easy access to cash

Liquidity is a key difference between money market and CD accounts. MMAs give you much more flexibility, allowing you to take out cash fee free.

Money is protected by federal insurance

The Federal Deposit Insurance Company (FDIC) and National Credit Union Administration (NCUA) cover MMAs. This insurance protects $250,000 of borrowers' funds if the provider goes out of business.

Cons of money market accounts

Better rates may be available elsewhere

When you compare a money market account versus a CD account or annuity, the MMA interest rates tend to be lower. If you’re looking for opportunities to grow your savings, you’ll usually do better with these other options.

Some banks require a minimum balance

While you can access the money in your MMA, banks and credit unions require you to maintain a minimum balance to earn interest. If you fall below the threshold, you may be subject to decreasing returns, maintenance fees, and account closures.

Banks may charge monthly fees

Some financial institutions charge maintenance fees, even if you meet the minimum balance. This may reduce your savings faster than other accounts.

Certificates of deposit explained

A CD is an account with a bank or credit union. You’ll agree to commit your funds for a certain length of time, and once the account matures, you’ll get those funds back along with interest. The institution typically pays a higher interest rate than an MMA or traditional savings account.

A CD is a secure, low-risk option if you want better returns than a savings account or MMA and won’t need access to your money right away.

Pros of CDs

Safety and security

The FDIC and NCUA insure CD accounts up to $250,000.

Widely available, varying types

You can choose from several types of CDs based on your needs:

• Fixed: Earn interest at a fixed rate.
• Variable: Interest rate fluctuates throughout the term..
• Step-up: Increase your interest rate automatically on a set schedule.
• Bump-up: Bump up your interest rate one or multiple times if interest rates rise.
• No-penalty: Withdraw funds at any time without incurring fees.
• Add-on: Continue making contributions to the account throughout the term.

Higher rates

Banks and credit unions offer higher interest rates for CDs to compensate investors for giving up access to their money. There are a few non-market factors that can affect CD returns:

• Minimum balance: The greater the minimum balance, generally the higher the interest rate.
• Term length: The interest rate generally increases when the terms are longer.
• Compounding: CDs with shorter compounding intervals have better annual percentage yields (APYs). For example, a CD that compounds monthly instead of annually will grow your savings faster because interest is calculated and added to your balance more frequently.

CD laddering options

CD laddering is a strategy that involves dividing your principal into equal amounts and investing it into CDs with staggered maturity dates. That way, you can access a third of your funds at the end of each year.

Here’s how it works: Imagine you have $3,000 to invest, so you deposit $1,000 each into a one-year, two-year, and three-year CD. At the end of the first year, you can either put the funds into a new CD or use them for any pending expenses.

Cons of CDs

Early withdrawal penalties

One of the key advantages of money market accounts versus certificates of deposit is that MMAs don’t charge early withdrawal penalties.

Banks and credit unions often charge a penalty for early CD withdrawals. This deterrent is typically a few months of interest for a short-term CD or a year’s (or more) interest for a longer-term CD.

For example, a bank might offer a 5% 5-year CD with a minimum balance of $1,000 and an early withdrawal penalty of six months’ interest. The interest compounds annually. If you deposit $1,000 and leave it until maturity, you’ll earn $276 in interest. But if you withdraw it early, the bank automatically deducts six months of interest ($25).

Inflation risk

Spikes in inflation can diminish the value of your growth. If your interest earnings don’t keep pace, your funds will be worth the same or even less by the time you withdraw them.

Additionally, the government tends to raise interest rates during inflation to help stabilize the economy. If your funds are locked into a CD account, you often can’t take your funds out to reinvest without incurring penalties. This means you might miss out on better earning opportunities.

Lower returns than other investments

CDs may have better interest rates than savings accounts or MMAs, but they often don’t compete with high returns from products like stocks.

Limited liquidity

Most CDs require you to lock your funds in for the entire term, often a few months to a few years. If you suspect you’ll need to take the money out early, you can opt for a no-penalty CD, which doesn’t charge early withdrawal fees. But these tend to offer lower rates than other CDs.

Requires research

Financial institutions attach their own terms and conditions to CDs. It’s important to research any CD you’re considering for investment.

Money market accounts vs. CDs

Consider the following factors if you’re trying to decide between an MMA and a CD:

• Liquidity: If you’re uncertain whether you’ll need access to your money in the near future, you should consider an MMA.
• Risk: The FDIC or NCUA backs both instruments, so MMAs and CDs are extremely safe options.
• Interest rate: CDs usually pay a higher rate in exchange for the long-term use of your money.
• Deposit flexibility: Once you purchase a CD, you often can’t make additional deposits. MMAs allow you to deposit and withdraw funds at any time.
• Investment purpose: MMAs are suitable for emergency funds and short-term purchases. If you know you won’t need your money until after a specific date, a CD might make more sense because they often pay a higher interest rate.

{{inline-cta}}

Are annuities a better investment?

So, what is an annuity, and is it a better investment than CDs and MMAs? An annuity is a contract with an insurance provider.

Here’s how they work:

• Purchase: You pay for the annuity with a lump sum or installments.
• Accumulation phase: During this period, your savings grow. You may have a fixed interest rate, variable returns based on market performance, or a fixed index rate tied to a market index.
• Payout phase: Once the annuity matures, it pays you in a lump sum or periodic disbursements (like a salary).

Key Differences

FIxed annuities usually offer higher rates and longer investment terms than CDs and MMAs, which can lead to more growth over time. Plus, you don’t pay taxes on earnings until you start taking distributions, so your money has more time to grow. Because variable annuities are tied to the performance of sub-accounts, returns are not guaranteed and it’s possible to lose your principal. While a fixed indexed annuity doesn’t invest directly in the market and you can’t lose your principal, your earnings are linked to the index it tracks and could be 0.

Annuities also come with unique benefits — some guarantee income for life, even after your original contribution, or death benefits that allow you to pass money to your heirs is gone.. These features make annuities an appealing option for many investors.

Gainbridge offers annuities designed to help grow your savings faster:

• SteadyPace™ is a fixed annuity designed for predictable growth and competitive interest over a set term.

Outpace MMA and CD growth with Gainbridge’s annuities

There are no one-size-fits-all investment options. CDs, MMAs, and annuities each have advantages and disadvantages. That’s why Gainsbridge has a wide variety of annuities to suit your savings goals. Our 30-day free look period allows you to return an annuity penalty-free within one month. And we never charge hidden fees or commissions.

If you want a safe, reliable investment with strong growth potential, explore Gainbridge’s investment options today.

This article is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. The Gainbridge® digital platform provides informational and educational resources intended only for self-directed purposes.

Annuities are issued by Gainbridge Life Insurance Company located in Zionsville, Indiana. Guarantees are based on the financial strength and claims paying ability of the issuing insurance company.