Differences Between CDs and Money Markets
If you consider yourself a conservative investor, you can keep your money safe and collect interest with either a CD or a money market account. You can open either type at a bank, savings and loan, or credit union. Determine what purpose you have for your money. Then the differences in terms and conditions will help you decide between a CD and a money market account.
Other People Are Reading
-
Features of Each Account
-
The features of CDs and money market accounts differ. A certificate of deposit (or CD) keeps your money safely invested for a period of time ranging from a few weeks to one or more years. You lose access to your money for this time. On the other hand, a money market account gives you access to your funds. According to Bankrate.com, federal law allows you to withdraw only six times a month or cycle. You can take up to three of these withdrawals by check.
Considerations
-
You may obtain higher interest rates with a CD, especially for longer periods. You can invest in either a CD or a money market account online or at brick-and-mortar institutions, but usually you get more interest online. Opening balance requirements also vary widely, with greater differences among banks than between the two types of accounts. (Compare rates and terms at the Bankrate.com link under "Resources" below.)
-
Disadvantages of Each
-
Since you are not supposed to get your money before a CD matures, you pay a penalty for withdrawing funds early. The law requires a penalty within the first six days. After that time, the fee is at the bank's discretion, with three months' interest a common amount. If you have CDs, you risk missing out on better rates if interest rates rise. Money market interest rates fluctuate, which means your interest decreases when rates fall. Money markets also frequently charge fees. Read your conditions and terms carefully.
Warning
-
Keep your money safe with deposit insurance. Look for the FDIC or NCUA logo wherever you open your account. CDs usually have insurance. If you buy yours through a brokerage, confirm that the account is insured. Do not confuse a money market mutual fund with a money market account at a bank. A money market mutual fund does not have FDIC or NCUA insurance. Also make certain you keep your total below the insurance limit of $250,000, which runs through December 31, 2013. (Check the FDIC or NCUA websites in "Resources" for details.)
Advantages and Uses of Each
-
Have access to your money in a money market account. A CD gives you protection against falling rates. It also keeps you from spending your money for another purpose. Use a CD for funds you will need in six months, a year, or several years--for example, to buy a car. On the other hand, a money market account protects you when interest rates rise. If your interest rate does not keep up, you can reinvest elsewhere. Since you can access your money, keep your emergency fund or money for monthly expenses in a money market account.
-
References
Resources
- Photo Credit dollars image by Mikhail Olykainen from Fotolia.com
