$20,000 3-month CD vs. $20,000 money market account: Which can earn more now?

Three months may not sound like a long time, but in a continuously evolving economic climate, it can be. For example, the difference between September 1, 2024 and December 1, 2024, was significant for both borrowers and savers as interest rates were cut multiple times. That, in turn, made borrowing less expensive and savings rates less profitable. And now, with interest rate cuts looking increasingly likely for when the Federal Reserve meets again in September, the timing surrounding a savings account opening is especially important to get right.

One attractive option is a 3-month certificate of deposit (CD) account. Rates here remain high (and higher than many long-term CD alternatives), and a three-month timespan will allow savers to weather any short-term economic changes thanks to the CD’s fixed rate. That said, money market accounts also have attractive rates now, and they won’t require sacrificing access to your money, which is a major concern when looking for short-term interest-earning options on a large, five-figure amount of money. 

Between a $20,000 3-month CD and a $20,000 money market account, then, the interest-earning potential is critical to determine, as it can help savers narrow down their options. But which can potentially earn more now? That’s what we’ll examine below.

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$20,000 3-month CD vs. $20,000 money market account: Which can earn more now?

Simply put, a money market account can earn more money than a 3-month CD, but it likely won’t. Here’s why: CD rates are fixed, meaning they will remain the same until the CD account matures, even if rate cuts are issued during that term. But money market account rates are variable and likely to adjust downward during that same period. 

Calculating the interest earnings with the latter account type, then, naturally involves some speculation about the rate environment. Here’s what a $20,000 deposit into both accounts would look like if savers acted now, tied to readily available rates on the assumption that no CD early withdrawal penalties are issued and that the money market account rate remains the same for the full three months:

• $20,000 3-month CD at 4.30%: $211.62
• $20,000 money market account at 4.40% after three months: $216.46
• Difference between accounts: The money market account earns $4.84 more

While the money market account technically earns more in this scenario, it’s hard to rely on that difference due to the variable rate. Additionally, the earnings differential is negligible, so deciding to choose that account over a CD is strictly a personal preference. In other words, if the goal is to earn as much (guaranteed) interest on your $20,000 as possible in three months or less, despite a money market account having a higher rate now, you’re more likely to accomplish that goal with a strategically opened 3-month CD account instead.

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The bottom line

On paper, a $20,000 money market account can earn more than a $20,000 3-month CD will, if both are opened right now. But that interest isn’t guaranteed the same way a CD account’s is, so savers will need to weigh volatility versus predictability and ultimately decide if the gamble to make a few more dollars worth of interest is worth it. 

Whatever you ultimately decide, however, just avoiding keeping this much money in a traditional savings account, which comes with average rates under 0.40% right now. By leaving your money there, you’re losing out on significant amounts of interest still to be earned, regardless if that’s with a CD, money market account or some other high-rate savings vehicle available this August.