So, you have some money and you don’t know where to put it. You don’t want to take on any risk, but still want to earn some interest on your money. If this sounds like you, keep reading!
In a nutshell, money market accounts and certificates of deposit (CDs) differ in one key area: money market accounts allow you to withdraw and deposit money without a penalty. (Already know the differences between the two types of accounts? Skip to our scenarios at the bottom for advice!)
When would you want a money market account?
You would want a money market account if you don’t want on any risk from the stock market and you want to earn more interest than a typical savings account.
When would you want a certificate of deposit?
You would want to apply for a certificate of deposit when you don’t want any risk, want to earn more interest than a typical savings account, and don’t think you will need to access that money for an allotted amount of time. CDs allow a much higher interest rate than any other product banks typical offer, but the caveat is you have to choose from [usually] a 6-60 month period to get that money back with the interest promised to you. If you need to access that money for an emergency, you will have to pay a penalty fee.
What’s our pick? That really depends on your situation.
Scenario 1: You want to earn interest without the risk of stocks and bonds, but still want the ability to take money out of the account.
Money market, OR better yet, a Paramount Bank High Interest Checking Account, currently at 1.75% APY as of 2.6.2020…
Scenario 2: You want to earn more interest, and have an emergency fund and/or plenty of fluid money elsewhere.
CD with the biggest rate – doesn’t necessarily mean the longest time!
Scenario 3: You would like to invest in the stock market, but you are retired or near retirement and the stock market is a little too volatile for such a short-term investment.
CD – pick your length wisely.
Scenario 4: You have money laying around that you don’t know what to do with and aren’t anywhere near retiring yet.
Play the stock market for the highest return. You are almost guaranteed to make money after 20 years, as long as you diversify.
If that scares you, CD.