Compare Money Markets to Certificates of Deposit

If you have cash that you would like to put away, you might as well make it work for you. This means that you should be able to earn interest on it while it sits in an account. One of the best ways to do this is to use a money market. Of course, there are a few methods of making interest from your money, with another type being a certificate of deposit. Compare these two techniques before deciding which is best for your situation.

You should first learn the pros and cons of money markets. This kind of account is basically a mutual fund that tends to have a share price of $1 most of the time. Those in charge of the account are responsible for investing the money in certificates of deposit, savings bonds, and other tactics of investment that are generally considered safe. Thus, it is usually thought of as a sure bet that you will get more than your original investment back. Another benefit of money markets is that they are similar to checking accounts, as you typically get a checkbook for it when you open one. This allows you access to your money when you need it, so it is like simply putting it under your mattress, except you stand to make a profit from it. Additionally, money markets are easy to open since most banks offer this feature.

Even though money markets usually allow access to the cash, many banks do have a limit on the amount of money that can be taken out by check every month. Thus, if you need constant access to the account, consider other ways to save. A money market account should be accessed during emergencies only. In addition, you will find that you make a higher rate of interest when you have a lot of money in the account, while you make less when you do not have much. This is unlike some ways of saving cash, as certain investment methods pay more for mature accounts than simply large ones.

If you are interested in an account that pays a higher interest rate for a mature account, you should consider a certificate of deposit. This is also called a CD, and boasts the attractive feature of increasing the interest rate for accounts that have been around longer rather than large accounts. Thus, the longer you keep your money in the account, the more you will make. While you can choose to have access to the cash during this time, you will get a lower interest rate than if you choose a longer maturity period. If you do not anticipate needing to use the money in the account, as you have another savings account, a CD is a good way to make some profit over a long period of time.

There are several ways to make money from your investment, but money markets and certificates of deposit are among the most popular. Compare their pros and cons before choosing one. Also consider speaking to a banker about your options.

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Money Markets Vs Certificates of Deposit - Which to Choose?

Deciding between money market accounts and certificates of deposit is a matter of determining the length of time and level of security you desire when investing. Both forms of investing can be very beneficial to your assets, but they satisfy different goals. Therefore, to decide between them, it is important to determine your goals.

Let's look briefly at some goals you may have in mind:

Long-Term Savings - If you're looking for a way to invest that can guarantee the amount of funds at maturity then certificates of deposit are probably the best way to go. They are debt instruments that are issued by banks or other financial institutions in exchange for money paid by an investor. The CD is given for a predetermined amount of time with a fixed interest rate until maturity. The trade-off in this is that you may not have access to your money for a while, anywhere from weeks to years. However, if you're not interested in having access to your money (and like investment growth) the CD is a good option.

Easy Access to Funds - If you are looking for an investment tool that allows you access to your funds whenever you want them then money markets would be a better choice. You can open your account at most any financial institution, from which you should receive a checkbook that will give you the ability to regularly invest in the form of purchasing stocks, bonds or mutual funds. Also, you can deposit cash easily in these accounts.

If you're still not sure of which route to take, here are some other ideas to keep in mind:

• Certificates of deposit are FDIC insured up to $100,000, much like money in a savings account; however, if you decide to opt for a longer maturity period (and higher interest rate), you may have to wait a very long time to access your funds.

• Money markets tend to keep their share price right at $1 per share, which works out nicely for some; however, if you want to take advantage of interest rate maturation you will have to deposit more money instead of waiting over a period of time like with CDs.

Making the decision of what you should do with your cash can be a tough one. But with certificates of deposit and money markets both clearly offering unique perks, your biggest job will be to decide which goals are most important to your investment future.

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