BEST MONEY MARKET RATES VS. BEST CD RATES
What is the difference between a CD (certificate of deposit) and a money market account? You often hear these two terms thrown around and sometimes you wonder whether they are interchangeable.
Actually, a CD and a money market account are different things. The best money market interest rates will, 99% of the time, be lower than the best CD rates. I say 99% because you can always find some promotion somewhere from some institution that might make the money market pay higher. But under usual cercomstances, the CD will pay the higher interest.
The reason for this is that a CD is an instrument of time. When you get a CD, you are agreeing to loan the bank your money for a predetermined amount of time. CD’s are evaluated on their length of time such as 6 months, 1 year, 5 years, and so on. The longer your CD along with the more you invest will determine the rate. The important part is that you have agreed to not take the money out until the CD matures. (most banks will allow you to take the money out but it will be with a penalty)
A money market account is different in that the money is more fluid. Different money market accounts have different rules but in all of them you are allowed limited transactions. This means you money is not “locked up” for the bank to safely loan as easily as a CD. Therefore, the interest rates a bank or any other financial institution is willing to pay will be less than a CD. With a money market account the more you put have in the account the higher the interest rate is likely to be but you have access to the money without penalty. This means that the best money market interest rates will still be lower than CD rates
