Exploring Traditional Bank Savings vs. Money Markets and CDs

July, 2023

When it comes to growing your savings, traditional bank savings accounts are not your only option, especially now that yields can be found in the 4-5% range. In this article, we will delve into the advantages and considerations of two alternative investment options: money market funds and certificates of deposit (CDs). By understanding the benefits of these cash alternatives, you can make an informed decision that potentially maximizes your yield while effectively managing risk. Let’s compare traditional bank savings, money market funds, and CDs in terms of their potential for growth and risk management.

Traditional Bank Savings: Accessibility and Limited Yields

Traditional bank savings accounts have long been a popular choice for individuals looking to save money. They offer certain advantages such as ease of use and FDIC insurance, which provides protection for your deposits up to a certain limit. However, it’s essential to consider the limitations of traditional bank savings:

Limited Yield: Bank savings accounts typically offer low interest rates, which may not keep pace with inflation. As a result, the growth of your savings over time may be modest.

Accessibility: While savings accounts provide easy access to your funds, they lack the potential for higher yields found in other investment options. This accessibility may tempt you to dip into your savings more frequently, hindering your long-term financial goals.

Money Market Funds: Liquidity and Stability with Higher Yields

Money market funds offer an attractive alternative to traditional bank savings. These investment vehicles pool money from multiple investors to purchase short-term, low-risk securities. Consider the advantages of money market funds:

Liquidity: Money market funds provide high liquidity, allowing you to access your funds quickly and easily. This makes them suitable for short-term cash needs while potentially offering higher yields than traditional savings accounts.

Stability: Money market funds aim to maintain a stable net asset value (NAV) of $1 per share. They achieve this stability by investing in low-risk instruments like Treasury bills and commercial paper. While there is still some degree of risk involved, these funds prioritize stability and credit quality.

Certificates of Deposit (CDs): Fixed Returns and Personalized Approach

CDs present another investment option to consider when looking for higher yields while maintaining a conservative approach. Explore the benefits of CDs:

Fixed Returns: CDs offer fixed interest rates over a specified period, allowing you to lock in your yields. This feature makes them appealing for individuals seeking the potential of predictable income and stable growth.

Personalized Approach: With CDs, you can customize your investment strategy by choosing maturity terms that align with your financial goals. Additionally, CDs provide FDIC insurance coverage, ensuring your deposits within the insurance limits are protected.

While money market funds and CDs offer potential advantages, it is important to be aware of the associated risks: Money market funds invest in short-term debt securities, and CDs rely on the creditworthiness of the issuing bank. There is always a possibility of default or credit rating downgrades affecting the performance of these investments. Both money market funds and CDs are influenced by interest rate movements. Fluctuations in interest rates can impact the yields and potential returns of these investments.

When deciding between traditional bank savings, money market funds, and CDs, it is crucial to weigh the advantages and considerations of each option. Traditional bank savings accounts offer convenience and safety, but may not provide substantial growth. Money market funds provide higher yields, liquidity, and stability. CDs offer fixed yields and a personalized approach with FDIC insurance protection. By understanding your financial goals, risk tolerance, and investment time horizon, you can make an informed decision that potentially maximizes yields while effectively managing risk.

At CWA, our advisors can provide further guidance in selecting the option that aligns best with your individual needs and perform a market analysis in search for the highest yielding money market funds and CDs.


Disclosures: For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based upon third party data which may become outdated or otherwise superseded without notice. Third party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this article.