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.