Should you choose a money market account and a certificate deposit?

Investment options are available in many different forms. Some manage money on a short term while some on a long term. Some offer higher rates of interest with a greater risk factor while others are safe modes of investment although offering lower interest rates. The terms and conditions vary for various vehicles of investment. One must familiarize himself with these options before proceeding to the next step .One of the biggest dilemma the  investors face are the management of funds in between investments. Money market funds provide this answer.

Money market funds

These are a type of mutual funds which are owned by a group of financial corporations. They are short term investments which offer interest to share holders. They maintain a net asset value of over $1.The rates of interest are directly proportion to the risk factor associated with the investment. The higher the risk the higher are the rates of interest. Since the funds are a low risk mode of investment the returns are comparatively lower. Money market funds bear many advantages. The margins of safety are high. They provide fixed returns with short period of maturity. The initial investment requirements for a market fund is low, thus it is easily accessible to the common man. Another positive aspect of a market fund is its liquid nature .It can be bought or sold at any given time.

Certificates of deposit

These are investment schemes where an investor locks away his money for a fixed period of time with a predetermined rate of interest. Larger the principle, higher the rates of interest. The rates of interest are also influenced by the market status at the time of creating a deposit. CD’s are usually long term investments.

Comparison

CD

Pros

They offer high rates of interest. The investor will be able to calculate his future returns prior to the onset of the certificate. It is FDIC approved hence the risk factor is lowered.

Cons

In a traditional CD the money is locked, meaning the funds cannot be liquidated prior to its maturation. The rates of interest cannot be altered even though their present market value would be far greater than that received

Money Market Account

Pros

They are safe investments of short duration. Funds are liquid. They have a low initial investment requirement. They maintain a net asset value of above $1.

Cons

They are not FDIC insured. Few institutions have a limit on the number of monthly checks.