CD vs. Money Market: Where Should You Invest?

The CD vs. money market debate has continued for a long time. CDs and money market accounts both have their advantages and disadvantages, so it can be confusing if you’re unfamiliar with the details of each type of investment. It is for this reason that some choose to simply work with both to get the most out of their money.

However, investing both ways may not be a strategy you’re interested in, which means you will have to make an informed decision on which route you’d like to take. A good way to get this done is by simply comparing the features of both.

Understanding CD Accounts

CDs (certificates of deposit) are investment tools that allow for financial institutions to essentially borrow money from you for a designated period of time (weeks, months, years), and in exchange for this loan, they pay you back with interest. When you purchase a CD, you know how long it will be held, as well as how much money you will make for your investment. Usually, the return isn’t very substantial, but it is safe – you are guaranteed up to $250,000 through FDIC insurance.

Money Market Account Basics

A money market account is also typically enjoyed for its safety. However, it is a little bit different than the certificate of deposit in that you are buying shares. What makes these accounts safer than stocks is that your shares tend to stay at $1 each. This means in order to make a higher return, you have to invest more money rather than wait a longer period of time as with the certificate of deposit.

Another difference is that you have access to your funds. Unlike CDs, which require that you stay away from your funds until the designated investment time period ends, you always have access to your funds via a checkbook with your money market account and can deposit money easily.

If you think that both the money market account and CDs seem like fun investments then it’s not a bad idea to try both – or combine them with other forms of investment in a portfolio. This way, you can benefit from a high level of diversification that is guaranteed to give you the returns you want.