What are the features of money market and CDs?

Investing the savings efficiently is prudent financial decision, and a good investment can earn a fair profit. Investing money in risk free avenues gives peace of mind by keeping the investments safe. There are many possible ways to invest money nowadays, money market and certificate of deposits being the most popular ones. 

Both certificate of deposits and money markets have appealing features. It depends upon the individual choice of the investor in making a suitable investment. The highlights of both money market and certificates of deposit are listed below, to help investors make a sound decision: 

Money market investment features:

• They are low risk investments, with financial institutions investing on government funds and projects which are bankable.
• In money market funds, the investor opens and account similar to checking account, for which the bank pays a high interest rate. The money invested is used for low risk investments, and the profit made out of it is returned to the account holder.
• Money market investment lets the account holder to withdraw from the funds without affecting the interest rates and causing penalty charges. This is much better than the traditional CDs because the money is always available to the investor.
• Money market investment can be completely withdrawn at any point of time. The bank pays the interests for as long as the money remains in the account. This offers more flexibility to the investor.
• The interest rates that the banks provide are proportional to the amount of money invested and are not constant as in the case of a CD. Also, some banks may impose restrictions upon the amount of withdrawals that can be made from the invested money. 

Certificate of Deposit Features:

• Certificate of deposits are investments that earn a fixed interest rate over a period of time.
• Investors cannot withdraw from certificate of deposits and foreclosure can incur some fees and penalties.
• Certificate of deposits can be chosen over any period of time, ranging from a few weeks to several years. They earn a constant interest rate, without considering the fluctuations in the market. Certificate of deposit locks the investment until the maturity making it unavailable for other profitable investments.
• Certificates of deposits earn a fair profit if they are laddered for a few years. This will offer the investor some flexibility and availability of funds for reinvestment.