So you have managed to save up a couple of hundreds, what do you do with your cash? Among the plethora of choices that you can use to answer that question, certificates of deposits and money market account are the usual picks. But the next question is: which is better?

Certificates of Deposit

When you decide to place your money in a bank as a form of investment, the financial institution will present to you a tangible proof of your investment in the form of a certificate of deposit. Just like when you set up a savings account, you will be paid the agreed interest by the bank. The only difference is that the loan matures. The maturities on these CDs range from just a few weeks to a couple of years. The good thing about long maturity is your interests increase with proportion to the length.

What’s so great about this is that you get prior knowledge as to how much you going to earn with your CD. You don’t have to worry about your investment being thrown down the sink if ever the bank decides to close because your capital is still insure by the FDIC for up to $100,000 which makes it just like any other insured bank accounts. On the other hand, availing of longer maturities on CDs will deny you access to your money thus limiting its use. But if the investor has a huge fortune to invest, he should seriously consider a money market account.

Money Markets

Money markets are quite like bank CDs the only thing that really differs is that the investor gets a checking account which they can use to take out funds from their account. The funds that the investor deposits, will get reinvested in government t-bills, savings bonds and certificates of deposit. The income that comes from the interests of the reinvested money will then paid out to the investor. Unlike CDs, investors can easily take out money from their accounts, which then make money market accounts quite similar to having a checking or savings account. Some financial institutions do limit the number of checks that you can issue in a given month. But the thing that you have to really think about is the fact that money market bank rates aren’t proportional to how long you decide to invest your money. Rather money market rates are contingent on the amount of money that you decide to invest. If you don’t have a considerable amount of money to invest, skip the money market account and go for bank CDs.

Information provided courtesy of http://moneymarketrates.org.

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