Money market and CD; which way to go?
Money market and CDs (Certificate of Deposits) are two (2) ways of investing money that you do not have immediate use for, they are both types of federally insured savings accounts that accrues interest by saving money into them, CDs offers higher interest rates that money market, this is because it does not possess the flexibility than money market possesses, which is the access to withdraw with a short notice, this isn’t possible with CDs as it attracts a penalty if such occurs.
Overview of money market accounts
The normal practice of banks and credit unions is to pay people who save money money with them from the interest rates they get from loan charges, however, the money market is quite different, as the interest paid to money savers is from other sources such as relatively safe investment products.
Banks offers higher interest on the money market because they share the income they make from the interests on your savings. One major advantage of the money market is that it is an hybrid of a savings account and a checking account, hence, it possess the ability to write checks.
Here are some reasons why you may choose to opt for a money account:
- When you have money which you want to earn interest on.
- When you want the ability and flexibility that comes with a savings account, this is usually in terms of cash withdrawals.
- When your bank or credit union offers a higher interest rate than the conventional savings account.
- When you need an account where you can add money as you continue to earn.
Overview of CDs accounts
A CDs account is a type of timed deposit account, this invariably means that you have to keep the money in the account for a specific period of time, which is known as term length, this may range from just a few months to a few years. CDs accounts offers one of the highest interest rates available in most banks and credit unions.
Unlike the money market, once this account is opened, you can’t add money to it, the more reason why it always require a high deposit before it can be opened, the least money that can be deposited is usually in the range of $500 to $1000 in many banks. The longer term length your money uses, the higher the interest payable on your account, there is always very high rates for “Jumbo CDs” which requires a minimum deposit of $100,000.
A CDs is said to be “matured” when its term length has come to a logical end, when this happens, the money would automatically roll into a new CDs, a short “grace period” of seven (7) to ten (10) days would be given for free withdrawals, any other withdrawal aside from the “grace period” comes with a cost penalty.
Here are some reasons why you may choose to opt for a CDs account:
- When you have money which you don’t have immediate use for a particular period of time, which is usually a few months or a few years.
- When you want to earn high and maximum interest without investing in risky investments such as the stock market.
- When you have enough money that can meet the required minimum balance needed to open a CDs account.
Similarities and Differences of Money market and CDs accounts
They both require an high minimum deposits to open the account, usually in the range of %500 – $1000, they are both insured by FDIC and NCUA, and both also offers a higher interest rate than regular savings account.
It’s major difference is that that once you open a CDs, you can’t make further deposits or withdrawals till after the end of the term limit, anything outside that would attract a penalty, while for a money market account, you can both deposit and withdraw money from it.
Other differences includes; you can easily withdraw money from a money market accounts through ATMs or checkbooks, while same isn’t possible with CDs accounts, you have to contact the bank or transfer the funds online. CDs accounts comes with a penalty for withdrawal, while a penalty only comes from the money market when you make more than six (6) withdrawals in a month.
Both money market accounts and CDs accounts are good depending on the desired use, money market accounts are good for emergencies, travelling and vacation trip expenses, while CDs are good when you have more than enough and even have your emergency funds fully stocked.
Lindsay VanSomeren: Money Market vs. CD: How to Choose the Best Investment for You