Which tops in the battle of money market vs CD?

Several options are offered by various financial institutions and banks for promoting their savings account services among masses. Prominent among those savings options include money market savings and certificates of deposits. The following are a few comparisons on Money market vs. CD.

Rate of return on investment

When compared to a typical savings account, the rate of interests offered by money market account as well as certificate of deposits is generally higher. The main difference is that the rate of interest offered by CD depends on the period of investment and longer is the period of deposit, higher will be the interest. On the other hand, the rate of interest offered by money market savings account will be determined by the amount left in the account and if the balance is higher the interest will be higher and vice versa.

Payment of interest

While comparing the interests of money market savings and CD, interest amount is added to the money market savings account at the end of every month. Two options are offered by certificate of deposit towards interest payment. The interest can be withdrawn once it is accrued. Otherwise, the investor can let the interest amount accrue on the deposit account when the money is not required. When the second option is selected, it cannot be drawn until the maturity of certificate of deposit.

Security

Both the money market savings accounts as well as certificate of deposits are secured with FDIC insurance. FDIC insurance offers coverage of a maximum amount of $250,000 for a single account.

Liquidity of deposits

Liquidity refers to the maintenance of cash or assets which can be easily converted into cash. Certificate of deposits are not liquid and the investor can not withdraw the amount invested until the maturity period. But when the whole or a part of invested amount is drawn, the account will be charged with high penalty that usually covers several months’ interest. Money market savings accounts are more liquid when compared with others and allows the account holder to withdraw money when needed. However, it has to be ensured that the minimum required balance is maintained in the account.

Variation of interest rates

Since different type of certificates of deposits are offered by issuing authorities, the rate of return of a certificate of deposit will be fixed at the time of setting up of the account and according to market fluctuations when the rates become higher, they can be locked. But interest rates offered by money market savings account will be changing according to the prevailing changes in the market conditions.