Comparison between money market accounts and CDs

Investing money in the right plans and programs remains a big puzzle for all. With hundreds of financial investment tools offered by banks and other financial institutes, choosing the right one on the basis of an individual investor’s need becomes a dilemma. For instance, both money market accounts and certificates of deposits are great investment plans. Choosing between them will basically depend on the percentage of benefits that an investor can earn from them.

A comparative account of both the kinds of investments will help in choosing the best of the investment plans. 

Comparison between money market and certificates of deposits 

  1. Money market accounts are a type of savings account that draws higher interest rates. Like all other regular savings accounts, money market accounts can be opened in any bank. Certificates of deposits are available only in large commercial organizations or financial institutes.
  2. The interest rates on money market accounts are higher than regular savings accounts but lower than certificate of deposits. However these interest rates are directly linked to that of the interest rates in the market and keep on fluctuating. The interest rates on certificate of deposits are fixed.
  3. Certificates of deposits are safer and risk free. They are not linked to the fluctuating market and therefore the chances of loss are not there. Money market accounts are linked to the market and in case of market rates going down; the investor also faces financial losses.
  4. The funds in money market accounts are more accessible than that of certificates of deposits. The certificates of deposits are time locked and withdrawal of money before the maturity date calls for penal charges. These penal charges are heavy and sometimes cut off half the funds in the certificate of deposits. On the other hand money market accounts allow three to six withdrawals per month. But any withdrawals made after that are chargeable and the interest rates to lower down.
  5. An investor is sure of the return that he is likely to get at the end of the maturity date when he has invested his funds in certificate of deposits. Since the money market accounts are always linked to the markets performance so the investor is not always sure of the returns.
  6. The funds that are to be deposited in the certificates of deposits are of very high value. FDI covers only $100000 of the fund value. The minimum balance requirements in money market accounts are $1000 to $2500.

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