The eternal battle between money market accounts and CDs continues

There are a number of investment instruments that you can look at if you have the money to spare. We shall now discuss certificates of deposits and money market funds. Before we come to a conclusion, we shall first discuss the features of each of these instruments.

A certificate of deposit is a debt instrument that is issued by banks and other financial institutions that deal with such investments. If you lend a certain amount of money to the bank for a certain amount of time, a fixed rate of interest is paid to you. The maturity period can range between a couple of week to even six years at a time. and the interest rate is decided based on the amount of money deposited and also the time for which it is invested.

The merits of this system of investment are that you can anticipate a said amount of money as pay back at the end of your investment period. These certificates are also insured by the FDIC or federal deposit insurance corporation for a sum up to $250000.

The demerits are that you will have to opt for a longer maturity period in order to get a higher interest rate from the bank. And you will not have access to the funds in the said period under most certificates of deposit.

On the other hand, money market accounts offer a lot of benefits that a certificate of deposit may not deliver. You also get the added advantage of having access to a checking account. it is some what like a mutual fund that will try to keep the share price constant at the price of one dollar. When you deposit your money with a money market account, your money will be taken by a professional money manager who will deposit it in savings bonds, CD’s, treasury bills, or any other sort of investment. Depending on the interest rate that you have decided up on and the guaranteed returns that were promised at the out set, the manager will decide where to invest the said funds and how much risk to incur.

The merits of this sort of investment are plenty. You get access to the money through a checking account and you can withdraw a certain amount of money every month. Usually it is around five withdrawals per month. This gives you access to your money at time unlike a certificate of deposit.
The demerits of this system are that a limit is placed on the number of times you can make a withdrawal every month. The rate of interest that you get will be proportional to the amount you have invested and not the period for which you want to stay invested. But again, it is also dependent on the risk that you are willing to incur. The interest rate is the promised interest rate but can never be guaranteed.