Beyond Savings Accounts: How to Choose Between CDs, Money Market Funds, Bonds, and More

Watching your savings grow slowly in a basic savings account can be frustrating, especially when inflation lowers your buying power. If you want your money to work harder, this guide will help. We’ll explain popular alternatives to savings accounts: Certificates of Deposit (CDs), money market funds, and bonds. You’ll learn how they work, their benefits and risks, and how to pick the right one for your goals.

Here’s what you’ll find inside:

You’ll get clear explanations of CDs, money market funds, and bonds, including important terms like annual percentage yield (APY) and mutual funds. The guide offers a simple comparison of these options in terms of returns, risk, access to your money, and fees. It includes real-life examples for people aged 45 to 54, such as saving for retirement or buying a home. You’ll also find practical tips to avoid common mistakes and make smart choices, plus where to find current rates and how to check your financial health before investing.

Certificates of Deposit (CDs)

A Certificate of Deposit, or CD, is a savings product where you put in a fixed amount of money for a set time, from a few months to several years. In return, you earn a guaranteed interest rate called the annual percentage yield, or APY. APY shows the real return, including interest that compounds over time.

Because you agree to keep your money locked in, banks usually offer higher APYs than regular savings accounts. CDs are low risk because they are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor, per bank. This means your money is safe even if the bank fails.

The downside is that you can’t easily access your money. Taking it out before the term ends usually means paying a penalty, which can reduce your earnings. CDs work well if you have a clear savings goal and timeline, like saving for a home down payment or retirement.

In 2025, some banks offer CD rates up to 4.2% APY for terms between six months and five years. You can find current rates on sites like Bankrate’s CD rates page.

CDs offer steady, predictable growth and are best for savers who want safety and guaranteed returns.

Money Market Funds

Money market funds pool money from many investors to buy short-term, high-quality debt like Treasury bills and commercial paper. Unlike CDs, money market funds are not insured by the FDIC, but they are usually low risk.

One big advantage is that you can access your money quickly without penalties. Returns can be higher than savings accounts but change with market interest rates. This makes money market funds a good place for emergency savings or short-term goals.

However, money market funds carry some risks. Their value can go up or down with interest rates, and there is a small chance the issuers of the debt might default. Money market funds are generally considered a low-risk investment option suitable for those who want better returns than savings accounts and easy access to their money, but who can accept a little risk.

Bonds

Bonds are loans you make to governments, cities, or companies. In return, they pay you interest regularly and return your money at the end of the loan period.

There are three main types of bonds:

Government bonds, like U.S. Treasury bonds, are very safe. Interest from these bonds is exempt from state and local taxes. The 10-year Treasury yield is about 4.1% in late 2025 (Trading Economics).

Municipal bonds are issued by states or cities to fund projects. They often don’t require you to pay federal income tax on the interest, and sometimes state taxes too. But they carry some risk if the issuer has financial problems.

Corporate bonds come from companies. They usually pay higher interest because they carry more risk. The company’s credit rating affects how risky the bond is.

Bonds can offer higher returns than CDs or money market funds but can lose value if interest rates rise or if the issuer runs into trouble. You can sell bonds before they mature, but you might get less than you paid.

For more information, check out Investopedia’s bond guide.

How These Options Compare

Here’s a quick look at how CDs, money market funds, and bonds stack up:

Feature	CDs	Money Market Funds	Bonds
Returns	Fixed APY	Variable, market-linked	Variable, often higher
Risk	Low (FDIC insured)	Low but not insured	Varies (low to moderate)
Access to Money	Limited (penalties apply)	High (easy access)	Moderate (can sell early)
Tax Benefits	None	Depends on fund	Possible tax advantages
Best For	Fixed-term goals	Emergency or short-term funds	Income and growth over time

Choosing What’s Right for You

Your choice depends on your goals, timeline, and comfort with risk. For example, if you’re saving for retirement, bonds and CDs can offer steady income and safety. Municipal bonds may save you taxes. For an emergency fund, money market funds give you quick access and better returns than savings accounts. Saving for a home? CDs timed to your purchase date give you steady growth. Mixing these options can help balance safety, returns, and access to your money.

Avoid These Common Mistakes

Many people lock money away without a plan. If you choose CDs, consider laddering, which means buying CDs with different end dates to keep some money accessible. Watch out for fees and penalties by reading terms carefully. Don’t forget taxes. Talk to a tax advisor or use tax-advantaged accounts when you can. Diversify your savings to lower risk. Budgeting tools or a financial advisor can help you stay on track.

Take the Next Step

Before investing, review your finances and goals. Use trusted sites like Bankrate’s CD rates and TreasuryDirect to find current rates and products. Start small, spread your money wisely, and adjust as your needs change.

By exploring beyond basic savings accounts, you can grow your money smarter and safer.

This article was developed using available sources and analyses through an automated process. We strive to provide accurate information, but it might contain mistakes. If you have any feedback, we'll gladly take it into account! Learn more