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.
