Choose the right savings vehicle for your needs
So you have some extra cash and want to know what to do with it. While CDs, money market accounts, and mutual funds are options for stashing your extra cash, the option you choose will depend on how you want to access your money—and on your tolerance for risk.
Here’s what you need to know about each:
CDs. Certificates of deposit pay a higher interest rate than typical savings accounts or even money market accounts because you give up access to your money for a set period of time, ranging from a few months to several years. There are minimum deposit requirements, and your money is typically FDIC-insured. (Note: Brokered CDs, resold by brokerages, are not always FDIC-insured.) Cash out a CD early and you’ll pay a penalty.
Money Market Accounts. These generally have higher minimum deposit requirements than typical savings or checking accounts, but they earn more interest, too. And because they’re bank accounts, they’re FDIC-insured up to the current $250,000 limit. They’re more liquid than a CD because money markets allow up to six outgoing transfers or withdrawals each month.
Mutual Funds. Typically, your money would be liquid, giving you access to it whenever you need it, but this is not always the case. While they are considered to be one of the safer investment options, they still involve a definite level of risk and are not FDIC-insured.