CDs Vs. Money Market Accounts
Certificates of deposit and money-market accounts are FDIC-insured investments that contain no risk to your capital. You should choose which you want to invest in based on whether you need ready access to your funds.
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Flexibility
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Money-market accounts are like checking or savings accounts--you can deposit and withdraw money whenever you want. CDs, on the other hand, have fixed terms ranging from several months to a few years. During the term, you can't add funds to the account nor withdraw any money without paying a penalty.
Interest Rates
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Because of the commitment involved, CDs usually offer better rates of return than money-market accounts. In August 2009, the average rate for a one-year CD was about 0.5 percentage points higher than the average rate on a money-market account, according to Bankrate.com.
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Stability
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In most cases, you know how much money you will earn in a CD. The interest rate quoted to you when you invest will not change during the term of the investment unless stated otherwise. Interest rates for money-market accounts can change daily.
Safety
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CDs and money-market accounts are insured by the Federal Deposit Insurance Corp. up to $250,000 per account.
Warning
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Don't confuse a money-market fund with a money-market account. Money-market funds usually are offered by brokerages or mutual-fund companies. Funds are invested conservatively in government securities and short-term corporate debt, but they are not FDIC-insured and can show losses.
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