CD’s or Money Market Funds?
Tuesday, November 21st, 2006
Most investors debate between CD’s and Money Market Funds, as alternatives for short to medium term saving and investment. While there are other possibilities including investing on the stock market, there are times when you would choose to keep your funds in fixed return investments. For example, while planning a major purchase or investment such as a house, or higher education for children.
As remarked in Sunday’s post on CD rates, the current increase in returns make CD’s a highly desirable alternative. However, the funds are locked up for the period of the CD; if you need the money in between, there can be significant charges and penalties incurred in releasing the money.
Money market funds offer rates which are lower than CD’s; but provide flexibility by way of checking facilities, to let you draw out money when you need it. The price you pay for convenience is the lower interest rates.
To decide between these two, you need to assess - are you going to need the money at short notice, or can you keep it invested for a predetermined period. If you have alternative resources to tap if required, CD’s are a better choice.
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