Money Market vs. Certificate of Deposit

Choosing whether to place your money in money market accounts or certificates of deposit can be quite frustrating. There are a number of things to consider when it comes to money market vs. certificate of deposit and understanding the differences can help you to choose the best place to stash your cash.

CDs or certificates of deposit are issued by financial institutions and banks and are considered to be debt instruments. When you purchase a CD you are paid a set rate of interest in exchange for lending your money to the bank or financial institution for a specified period of time. This period of time is known as the maturity date and maturities typically range from a few weeks to several years. CDs carry many advantages, one of which is that they are insured by the FDIC for up to $100,000. If however you choose a longer maturity and a higher interest rate then you will lose access to your money until that maturity date.

Money markets provide a host of benefits as well and give you the added benefit of a checking account. Money markets are mutual funds that try to keep their share prices consistent at $1. When you invest in a money market account a professional money manager will take your deposit and in turn invest that deposit in CDs, savings bonds and other safe financial instruments. The income that is returned on the investment is then paid to you. You can open a money market account at any number of financial institutions and you typically receive the features of a checking account in order to access your funds. The advantages of a money market account include the ability to access your funds instantly when needed. You should note however that some banks and financial institutions will have a limit on the number of checks that you can write on the account each month. The interest rate on money markets will be determined by your deposits as opposed to CDs wherein the interest rate is based on the maturity of the investment. Money markets tend to be a bit more beneficial for those who have more money to deposit into them initially.

Both certificates of deposit and money markets can be beneficial depending on what specifically you are looking for with regards to investing and saving. Deciding between the two will depend on the length of time that you want to leave your money invested and how much security you need. If you want a long-term savings option then CDs are the best choice. This is of course if you are certain that you will not need access to your funds until the CD matures. If you need easier and/or faster access to your money then a money market account is a much better choice. If you are looking for a higher rate of interest then a CD is the better choice as money markets will typically stay at $1 per share. If you feel safer with lower risks then a money market account is a good choice.

Ultimately, the decision will come down to just how long you want your investment to draw interest and how high you want that interest to be. Of course, if you feel that you may need to access your savings then you will need to opt for a money market account. You should check however to ensure that you will incur no penalties for exceeding your withdrawal limit within a given month and that there are no penalties for falling under a minimum balance requirement. You can get more information about both CDs and money market accounts at your preferred bank or online financial institution.

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