Money Market CD Overview

By: EconomyWatch Content Team   Date: 25 February 2010

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A money market CD is a type of investment savings account secured through a bank.  Because of the bank being a government entity, this type of Certificate of Deposit would be insured by the FDIC (Federal Deposit Insurance Corporation) up to $250,000.  Many people like this option because it is a completely safe method for saving money but also making money.  Some people will take out a money market CD as a short-term investment while others will create an account while young and allow it to grow until retirement.

If you want a means of saving money without experiencing risk, a money market CD is an excellent option.  Other types of investments that could be initiated through non-FDIC insured accounts such as annuities, life insurance policies, mutual funds, stocks, bonds, etc but these all carry risk.  This means you would definitely be at risk for losing the initial money but also any gain through interest yield.

This is why a money market CD is a great savings strategy.  However, even with this type of investment, it is important to have a clear understanding of the reason for the savings, as well as a realistic understanding of what it is going to take to reach your goal.  As an example, if you were to invest in a money market CD to purchase a new automobile, then you know the CD would need to remain untouched for several years but if you were looking to improve cash flow when heading off to school in a year, the money market CD would be scheduled for a shorter maturity date.

Typically, if you want a money market CD that can be converted to cash quickly, we suggest you consider a six or 12-month CD.  Otherwise, the CD should be left alone for two, four, six, or eight years, or even longer.  Remember, the longer you leave the money market CD alone the higher the yield will be.  This requires patience and again, a good strategy but the rewards would be worth the wait.

Of course, if you have multiple goals, you can always set up a short and long-term money market CD account.  The best thing you can do is understand this type of savings account and then begin looking at offerings through different banks to find the highest interest rate possible.  A simple rule of thumb when investing in a money market CD is the higher the interest rate the more yield you will enjoy in the end.

You will find that a money market CD is a simple, easy way to invest your money.  This type of savings is generally flexible and when the right bank and CD are chosen, the more money you can earn.  Interestingly, the amount of interest you can earn with a money market CD is about 50% more than you would make with a regular savings account.  Of course, most banks have a minimum amount required to start a money market CD account so this would be something you need to identify from the beginning.

Probably the greatest benefit of choosing a money market CD over any other type of investment is that if you needed to withdraw money or make a funds transfer, you could and without being penalized.  In fact, with this type of savings account, you would have access to your money in a variety of ways to include a debit card through the bank, regular check, online services, and wire transfer.  With this CD account you could also set up a bill payment option with the bank, using the funds to make payments to different creditors.


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