If you need to invest your money while keeping it safe, both a money market account and a certificate of deposit can give you what you need. With a money market account, you get a competitive rate of interest, generally higher than what you could get on a savings account. You also get instant access to your money when you need it. With a CD, you generally get a higher rate of interest than with a money market account, but you would face penalties for removing the money too early.
Ask your bank about current rates on their CDs and money market accounts. In most cases, the interest rate on a CD is higher than on a money market account.
Calculate the amount you have to invest and make sure it meets the minimum required by the bank. Read the fine print carefully when opening a money market account—some accounts charge a monthly maintenance fee on balances below a certain amount.
Compare the interest rates offered by your own bank to other banks and credit unions in your area. Also check the rates at online banks, since those rates can be quite a bit higher. Use a online comparison tool (see Resources) to compare rates at both local and Internet banks.
Compute the real dollar return for the amount you want to invest. Putting the returns in actual dollar terms makes it easier to determine whether tying your money up in a CD is worthwhile. For instance, if you invest $2,000 in a money market fund paying 1 percent, your earnings for the year will be $20. If you invest that same $2,000 in a two-year CD paying 2 percent, you will earn $40 per year.
Weigh the inconvenience of having your money tied up for a certain period of time with a CD versus the lower interest rate on a money market account. If you want the best of both worlds, you could keep a small amount of liquid cash in a money market fund and stash the rest in a CD with a higher interest rate.
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