Are you looking to generate income from your savings? Why not have your hard-earned money get out there and work for you? Well, we can certainly help by getting you started in either a Money Market or Certificate account.
But how do you decide which is best for you? Certainly, each investment has advantages and disadvantages. By figuring out market conditions alongside your own financial circumstances, you can work to make the best decision to fit your needs.
What is a Certificate?
A certificate is a special type of deposit that earns dividend income. When you invest in a certificate, you are depositing your money into the credit union for a pre-determined length of time (often 1 year and up). At the end of that time, your deposit “matures” and you are returned your money with the additional dividend payment. Generally, (and this can vary) the longer you keep your funds in a certificate, the higher the yield. What’s more is that many folks don’t know these funds are federally insured by the National Credit Union Association (NCUA).
The catch: Should you need access to your funds earlier than the term agreed upon, you’ll likely pay an early withdrawal fee. You may even lose some or all of the money accrued.
What is a Money Market Account?
Money Market accounts are like savings accounts but often pay you higher rates. Like a certificate, they too are federally insured and so have very little risk. Money Markets usually require a higher minimum balance and while you can make withdrawals, the number of withdrawals you are able to make over a given time is restricted. Thus, they are less liquid than a checking account but more liquid than many other investments, for example.
The catch: If you are not planning on using the funds in your Money Market account, you may be missing out on a higher yield.
What are some of the differences between the two?
- When you invest in a certificate, everything is pretty clearly defined from the get-go. You can calculate the expected earnings. You also know your fixed rate and how long you plan to tie up your funds.
- It may be harder to plan long-term with a Money Market account, as the rates vary over time and the funds aren’t locked up for any particular term length. This makes calculating your investment results less clear.
- With a certificate, the longer the term, the more likely you will receive a higher yield. This can be advantageous, should rates decrease as you are tied to a better rate. Of course, you won’t have immediate access to your funds for a longer period of time.
- Money Market accounts are easier to access than certificates. Although, keep in mind that there are limits on the number of withdrawals you can make.
- Both Money Market accounts and certificates are federally insured by the NCUA up to $250k.
- With Money Market accounts the dividend rate is directly proportional to your deposit amount and not to maturity (as is the case with a certificate). That being said, Money Market accounts might make more sense to a larger depositor.
So which is right for me?
Each of these products have their benefits. However, if you’ve a higher cash balance but need quick access to your funds, a Money Market account might make more sense for you. On the other hand, if you don’t mind locking up your savings for a bit, then you may want to look into a certificate.
Clearly, we all have our own, unique financial situation. If you are looking into investing, it’s never a bad idea to get in touch with a financial advisor, or learn more on our website investment page.
Wauna Specialty Accounts: Certificate, Money Market, and IRA Accounts