Making Your Money Work For You Part 2
In the last installment of “Making Your Money Work For You” I started talking about the importance of placing money in an interest bearing savings account. Well there are other types in risk free accounts that you can place your money in. These include money market accounts and certificates of Deposit also known as CD’s.
Personally I am not a big fan of CD’s unless you have a large sum of money to invest in them (over $100,000). The reason for this is your money is locked into these investment for the term stated. Most can range from 1 month to 5 years. The longer the term the higher the interest rate.
Money market account are pretty much the same as savings account. Each one of them are FDIC insured up to $100,000 and each one of them pay approximately the same interest rates. Money market accounts will typically have rates a little bit less than some of the higher yielding online savings accounts. The only real different between the two is how the banks use the money. With savings accounts banks are restricted to using the money to lend to borrowers in exchange for a set interest rate. Deposits from money market accounts are invested by the bank in various investments such as treasury notes, certificates of deposit, municipal bonds and more.
Stay tuned next week as I talk about how much you should be saving each month and I start going into different investments.