What is the difference between CD and money market?

Saving is important, particularly because the present world economy is highly unstable. The need to ensure financial sustainability has become top priority for many families, particularly because there is very low job security these days. In response to this growing need, many banking systems have started offering numerous services allowing people earn passive income through their savings. Passive income defined as the money earned through interest rate of the amount people deposited. It is basically the money earned without doing anything.

Two of the more common ways to earn passive income is through the money market account and certificates of deposit. These two are forms of deposit that yield interest, however the certificate of deposit, also known as CD, can yield higher interest rates than money market accounts.  

While people can earn higher with certificates of deposit, clients have limited access to their funds. It works a lot like a time deposit because depositors are unable to withdraw their money until the date of maturity. This feature may be inconvenient for some depositors but it can also be seen as an advantage. Because depositors do not have full access to their money, they are forced to save. This means that the fund is really secured for a specific period of time. And the longer the deposited money remains untouched, the higher the interest rate it would earn. So for people who find it hard to leave their deposited money alone, then certificates of deposit may be the investment tool of choice.

However for those who could not really afford to lock up their savings for a long time because they want to have access their funds immediately in case of emergency, certificates of deposit may not be the ideal option. This is because most issuers of CDs impose a penalty if depositors opt to withdraw funds before the date of maturity. On the other hand, a money market account a depositor can access their money at anytime; hence the interest rate it earns is much lower compared with CDs. Also, the interest rate can vary, depending on the terms and conditions provided by the financial institution.

To maximize the benefits of these two forms of deposit, one must be able to analyze his/her financial strength and needs. If one can keep up with emergencies without needing to touch the deposited money CD can be a better option however if one cannot be certain when to need the savings it is best to get money market service so that withdrawal is not restricted.