(in light of added questions from others, my question is slightly edited)

New to investment and only recently did I notice that in the US some money market funds generate 1.5-2.3% yields, which are comparable to most short-term (<2 yr) CD rates.

Based on the yields and comparable taxes,

(a) is it correct that money market funds are a better investment now ? Considering that there is a penalty for an early withdrawal of funds in the CD but money market funds are more fluid and can be withdrawn when yields drop (with no penalty).

(b) what specific risks should I look for in the money market funds ?

  • 1
    What happens if rates go down? The CD will hold its rate, and the money market will decrease. Not always cut and dry, and the market is betting that rates will go down in the future in such situations.
    – Pete B.
    Nov 6, 2018 at 14:52
  • are the money market funds FDIC insured? Nov 6, 2018 at 14:52
  • @Pete and mhoran - MM is not FDIC insured but I thought I can withdraw funds from MM without penalty (original question is now edited to include this also)
    – B Chen
    Nov 6, 2018 at 22:51

1 Answer 1


In the US, the best one year CD is 2.75% which is a decent amount better than the best MM rates. MM funds are not a better investment now unless one year rates jump well past 2.75% in the next year and that's not likely to happen.

There are small differences b/t the two. For example, possible delayed taxation with a CD. But otherwise, there's no tax advantage to either product.

  • isn't it correct that the best CD (2.75%) is bank specific so unless you deposit your funds in a specific bank, you won't get the rate ? Plus the funds for CD will be locked in for one full year, which prompts me to look for MM.
    – B Chen
    Nov 6, 2018 at 22:53

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