Comparison of money market accounts and CD
Money market and CDs are two different options that allow us to invest money, in order to get better returns. Money market fund is an open ended mutual fund that primarily invests in debt securities for a shorter duration of time. The objective of such fund is to earn interest for its investors. Money market fund can also be called money market mutual fund. This type of fund is generally low risk low return type of investment and is relatively safe to invest in. The money market fund is highly liquid in nature and is easily accessible.
A certificate of deposit is a fixed deposit investment scheme offered by various banks and financial institutions. It is time bound and earns high return in comparison to regular savings accounts. The investor earns high return on maturity along with the principal. Early withdrawal is not entertained and in case the fund is withdrawn penalty in terms of charges or reduced interest rate is levied.
If we see money market vs. CD in view of a savings account, we can see that they are both same in nature with the money market having an added feature of having a checking account along with it. In a money market the customer gets a cheque book along with an ATM card whereas in a CD the customer does get the benefit of getting a cheque book or a card.
In terms of liquidity if one sees money market vs. CD; money market is more liquid than a CD. In a CD money cannot be withdrawn and used for any other purpose without charges being levied, Whereas in a money market the shareholder can withdraw funds as and when need arises. Money invested in a CD gets blocked for a fixed period of time but money invested in a money market the funds can be used for some other investment options.
Money market vs. CD if seen in terms of calculations of interest; at the time of investment itself the investor can calculate the amount they will get on maturity, whereas in a money market the return is directly proportional to the amount of investment and the returns cannot be judged prematurely. In case of a CD the rate of interest is fixed at the time of investment and in money market the rate of interest is variable.
After a thorough comparison of money market vs. CD, the investor is the best judge to decide which account suits best and is as per the investor’s requirement. However one must keep in mind that one should opt for a money market investment option if the investor has their money saved and would require an easy access to it in times of need. Whereas a CD would be beneficial for the one who would like to save their money and would not want an easy access to it for a specified period of time. In view of this major difference the investor can choose whichever is applicable to him in both the respective circumstances.
