How to Compare the Return on a CD Vs. Money Market
Certificates of deposit and money market deposit accounts are different accounts offered at banks and other financial institutions. Certificates of deposit offer a fixed rate of interest and the money must be left in the account until it matures. Money market deposit accounts offer higher interest rates than a savings account but still offer similar liquidity, or access to your money. As of August 2009, both certificates of deposit and money market deposit accounts are insured for up to $250,000 per person.
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Instructions
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Determine whether you can afford to be without the money you are considering investing in the certificate of deposit until it matures. If you are not certain that you can do without the money, the early withdrawal penalties usually make certificates of deposit a poor investment.
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Determine whether you can invest enough in the money market account to meet the minimum balance requirements, if any.
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Determine the interest rate you would receive on a money market deposit account and a certificate of deposit. Online sites such as Bankrate and Lending Tree allow you to compare rates from a wide range of financial institutions.
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Chose the account that will give you the highest rate of return and contact the financial institution that offers it to set up an account.
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Tips & Warnings
To calculate the value of a certificate of deposit when it matures, use the following formula where A is the amount of money you put into the certificate of deposit, R is the interest rate, N is the number of times per year the interest is compounded and Y is the term of the certificate of deposit in years. Value at Maturity = A * (1 + R / N) ^ (Y * N)
Do not confuse money market deposit accounts with money market mutual funds. Money market mutual funds are not FDIC insured and are not as liquid as money market deposit accounts.
