Comparing A Money Market And A Certificate Of Deposit

As investors, we all face common problems. Where can I find the best rate of return? What is a good stock to invest in? What do I do with my money in between investments? With the first two questions, limitless answers can apply. However, with the last question, there are two popular alternatives. A CD or money market account are both viable choices that should be investigated. But which one will give you the most bang for your buck?

CD’s or certificates of deposit are basically like you giving the bank a loan. You give the bank a certain amount of money and they give you a certain amount of interest. The interest rate that you get is proportionate to how long the investment is. Before you ever deposit your money into a CD, you decide on how long the money will be invested. The longer you invest, the higher your interest rate will be. This is why older people are notorious for having many CD’s because they simply want to keep the money they have at a reasonable interest rate.

CD’s can range in time frames from a few weeks to years. It all depends on the investor. The bad thing about CD’s is that you don’t have access to your money. If you decide that you need to get your money out of a CD before it matures, you will probably have to pay a fine. So if you get a CD, your money is officially tied up.

The other popular choice is a money market account. This is basically like an investor’s checking account. Whichever investment firm you have will take the balance from your money market account and invest it into mutual funds and other securities. With this form of investment, the rate of return is directly proportionate to how much money you have in the account. It is not linked to a certain time period as with a CD. This means that if you don’t have very much money, you won’t make any interest. The main benefit with these accounts is that you have access to the money at any time. Most financial institutions will give you a checkbook that you can use like you normally would. The bad thing is, many people will treat it as an actual checkbook instead of their investment money.

Whichever form of investment you choose, make sure it’s the right one for you. They both have positives and negatives that you should consider, before making a choice.

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