When comparing options like individual retirement accounts (IRAs), certificates of deposit (CDs) and money market accounts, it’s important to understand how each can fit into your financial strategy. While you cannot directly invest in an IRA itself, you can hold investments like CDs or money market accounts within one. When comparing an IRA vs. CD vs. money market, this is a breakdown of what each option offers and how they differ.
A financial advisor can help you select and manage investments within your IRA. Match with an advisor today.
What Is an IRA?
An IRA is a tax-advantaged account designed to help individuals save for retirement. IRAs allow you to hold various types of investments, including these:
There are several types of IRAs, including traditional and Roth IRAs. With a traditional IRA, contributions may be tax-deductible, and income tax is deferred until withdrawals are made during retirement. Roth IRA contributions, on the other hand, are made with after-tax dollars, so qualified withdrawals will be tax-free.
An IRA is designed for long-term retirement savings, offering tax advantages to help your money grow.
Contribution Limits and Eligibility
For 2025, the IRA contribution limit is $7,000 for people under 50 and $8,000 for people age 50 and older. These limits apply across all IRAs. If you have both a traditional and Roth IRA, your total combined contributions cannot exceed this limit.
Roth IRA contribution rules are subject to income phase-out ranges beginning at $150,000 for single filers and $236,000 for married couples filing jointly.
Tax Considerations and Withdrawals
IRAs offer tax advantages that can significantly impact retirement savings. With a Traditional IRA, taxes are deferred until funds are withdrawn, typically after age 59½, to avoid penalties. Roth IRAs, on the other hand, allow for tax-free withdrawals under the right conditions.
It is also worth noting that required minimum distributions (RMDs) apply to traditional IRAs starting at age 73 (age 75 for people born in 1960 or later). If you own a Roth IRA, however, you won’t have RMDs during your lifetime.
What Is a CD?
A CD is a time deposit account offered by banks and credit unions that pays interest on funds held for a fixed term. When you invest in a CD, you leave your money in the account for a set period, whether months or years, in exchange for earning interest.
Interest Rates and Penalties
CDs generally provide a higher interest rate than standard savings accounts, delivering a low-risk return since the rate remains fixed for the entire term. This feature can be particularly appealing in a declining interest rate environment.
Withdrawing funds from a CD before the maturity date will usually incur a penalty. This can reduce the overall earnings. As a result, CDs are best suited for individuals who do not need immediate access to funds.
What Is a Money Market Account?

A money market account is a type of savings account that typically pays more interest than regular savings accounts. These are offered by banks and credit unions and are insured by the FDIC or the NCUA, providing a safe place to store your money.
Money market accounts often come with check-writing privileges and debit card access, making them more flexible than CDs that usually require you to lock in your funds for a set period.
You should note that this kind of savings account is often confused with a money market fund. A money market fund is an investment product that invests in low-risk securities and is not FDIC-insured.
Interest Rates and Access
The interest rates on money market accounts can vary based on the financial institution and current market conditions. While they generally offer better rates than standard savings accounts, they may not always match the potential returns of other investment vehicles, such as CDs.
However, the liquidity of money market accounts is a significant advantage, as you can typically withdraw funds up to six or fewer times per month without penalties. This is different from CDs, which may charge fees for early withdrawals.
IRA vs. CD vs. Money Market Accounts
There are certain factors to consider when deciding whether to hold investments like CDs and money market accounts inside an IRA or separately.
Tax Advantages vs. Flexibility
IRAs, whether traditional or Roth, offer specific tax benefits that neither CDs nor money market accounts provide but include penalties for early withdrawal before retirement age. CDs and money market accounts outside of an IRA, on the other hand, allow easier access to funds but offer no tax advantages.
Growth Potential vs. Stability
IRAs provide access to a broad range of investment options, including CDs, money market accounts, stocks, bonds and mutual funds, which can offer higher growth potential over time.
CDs and money market accounts, whether inside or outside an IRA, are more stable but offer limited growth potential when compared with higher-risk investments held within an IRA. CDs are locked in at a fixed interest rate, providing earnings in exchange for stability. Money market accounts sit somewhere in the middle, offering a modest return with more flexibility.
Liquidity and Accessibility
Money market accounts allow for frequent withdrawals, although they may be subject to limits. CDs require you to lock your money away for a set period, with penalties for early withdrawal. Investments held in an IRA, including CDs and money market accounts, are generally less accessible due to early withdrawal penalties before retirement age.
Therefore, if you need immediate access to funds, money market accounts provide the most flexibility, while IRAs are more suited for long-term growth goals.
Who Should Choose Which Option?
When deciding between investing in an IRA vs. CD vs. money market account, it helps to consider critical factors like your financial goals, time horizon, risk tolerance and need for liquidity. Each option serves a different purpose, and understanding the difference can help you make the right choice.
- IRA: Best for long-term, tax-conscious investors who are specifically saving for retirement. If you’re looking to grow your wealth over decades and take advantage of tax benefits, an IRA — whether traditional or Roth — is a strong choice.
- CD: Ideal for risk-averse savers with medium-term goals who don’t need immediate access to their money. If you have cash you can lock away for a set period in exchange for a guaranteed return, a CD is a safe and predictable option.
- Money market account: A good fit for people who need short-term liquidity but still want to earn some interest. If you’re building an emergency fund or want easy access to your savings with less risk, a money market account offers flexibility and security.
Your financial goals can help you choose the right account to suit your needs.
Financial Goal | Best Option | Why? |
Saving for retirement with tax benefits | IRA | Long-term growth potential with tax advantages |
Medium-term savings (1–5 years) | CD | Fixed return and principal protection |
Emergency fund or short-term savings | Money Market Account | High liquidity and FDIC-insured safety |
By aligning your choice with your timeline and objectives, you can use these accounts more effectively as part of your overall financial strategy.
Bottom Line

When comparing IRAs vs. CDs vs. money market accounts, it is important to consider factors like potential tax benefits, liquidity and returns. Inside an IRA, both CDs and money market accounts gain the tax advantages of the IRA, but withdrawals before retirement may incur penalties. Outside an IRA, CDs offer secure, low-risk returns with fixed interest, but early withdrawals may still incur penalties. Money market accounts outside an IRA provide more liquidity and easier access to funds, while inside an IRA, they offer the same tax benefits but are subject to IRA withdrawal rules. Your decision depends on your financial goals and your need to access funds.
Ask a financial advisor about the right investment options to help you achieve your financial goals while preparing for retirement.
Tips for Investing
- A financial advisor can help you choose investments for your portfolio and make sure you’re on track to meet your financial goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to know what a potential return might look like on a CD, or another investment, SmartAsset’s free investment return and growth calculator can help you get an estimate.
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