Does the money market account overpower the certificate of deposits?

Money market and Certificate of deposits are financial tools that are aimed at benefiting the investor with an increase in their profitability on the investments that they make. Banks and other financial institutes offer these accounts to their customers to meet their needs.

A comparative account between the certificate of deposit and the money market funds can be discussed under the following categories.

Security 

The certificates of deposit, as well as money market funds, are regulated by the FDIC. While in case of money market funds the FDIC sees to it that the fund allocation remains diversified and the investor is ensured a return of $1 for every share that they invest, in certificate of deposits, the FDIC provides coverage for up to $250000 per deposit.

Rate of Return 

The investment returns are higher in case of money market funds. This is because these are short term investment funds that yield higher interest rates. These rates depend on the markets performance. The rate of return in certificate of deposits on the other hand, depends on the time frame. The longer the time the investor keeps his money invested the higher will be the returns.

Period of investment

Money market funds are invested for shorter period of time which is around ninety days to a year. These are short term variable income funds. Certificate of deposits on the other hand have to remain invested for a particular period of time ranging from 60 days to 8 years or more. This blocks the funds for that specific span of time.

Liquidity 

Both money market funds as well as certificate of deposits can be withdrawn through checks and electronic transfer. The main problem with certificate of deposits is that since these deposits remain invested for a longer period of time so withdrawing the money before the maturity date will call for penalties. On the other hand, the funds in the money market account can be withdrawn at any point of time.

Interest payments 

Interest for money market deposit accounts are paid at the end of each month and added to the investors account. For certificates of deposit, interest can be paid in to the account or paid to the investor directly as per instruction of the depositor. Once the interest gets deposited in a certificate of deposit, it too gets locked up for the period of maturity.

Variation of rates

The rate of return for certificate of deposits remains fixed for the amount. The rate of return for money market funds on the other hand depends on the performance of the shares in the market.