Comparisons Between A Money Market Account, Savings Account And A CD

When wishing to make some safe investments with money, many people will look towards a bank and the type of accounts available that will yield the highest interest with minimal risk. Typically, there are three types of accounts that would qualify as low risk savings investment accounts: A money market savings account, a money market account and a Certificate of Deposit (CD). While all three of them offer the ability to save money with a low rate of return, there are vast differences between the three that need to be explored.

A savings account is by far the simplest solution, but also the one that yields the least amount of rate of return. In recent years, many savings accounts offered by banks are yielding interest rates as low as 0.10 percent. While your money is federally insured up to $100,000, and it only takes a deposit of $5 to open an account, the yield is not very attractive, certainly not as attractive as for a money market account or a CD.

A money market account generally requires a minimum deposit of at least $1,000, with some banks and credit unions requiring a minimum of $10,000. Since it is not considered to be a transaction account, withdrawal transaction options are limited at most institutions, with some banks charging high fees for exceeding withdrawal limits. However, the interest is considerably better than that of a savings account, but not quite as high as that of a CD. With a money market account, the interest rate rises as the balance in the account rises. In current economic times, interest rates have dropped dramatically, making the choice to open this type of account less attractive for investors.

A Certificate of Deposit is opened with a set deposit amount, usually starting at a minimum of $5,000 and rising in increments up to $100,000. The difference between a CD and a money market account is that CD interest rates are negotiated by the bank in accordance with the amount of money deposited in the CD, so the interest rate won’t fluctuate. Generally, the longer the maturity rate is for a CD, the higher the interest rate. The biggest drawback to a CD as opposed to a money market account is that money is completely tied up with a CD, there is no chance to withdraw money until the CD matures. Depending on how liquid you want your money, a CD is definitely the best bank option in terms of rate of return.