fffU: Savings, CDs, and Money Market Funds Explained

Savings, CDs and Money Market Funds Explained

The fine folks over at Mint.com offer some very simple definitions for Savings accounts, CD’s, Money Market accounts, and the varieties of each. A few include:

Savings Accounts

The good thing about a savings account is that you have access to your cash whenever you need it and if you open a savings account that gains interest, you will be making money off the money you are saving. Now, let’s be honest, the interest you will earn might not be very high, depending on the bank you choose it will vary, but it’s better than having the funds in a non-interest bearing account that just sits there. Typically, a bank requires the holder of the account to maintain a minimum balance of $25 to $100. No fees are assessed as long as the minimum is maintained. The national overnight average at the time this article was written was 1.42% for savings accounts. Don’t forget that interest on your savings account has to be reported as income on your federal and state returns because interest earned on this account is taxable.

CDs

A certificate of deposit is the type of instrument you buy when you want to earn interest on your funds while they are “locked” for a fixed period of time. The amount you need to purchase a CD ranges from $100 to $100,000. The fixed period of time could be anywhere from 7 days to 10 years and interest earned on the CD is typically a fixed rate for the entire term of the deposit. The longer the term of the CD you purchase, the higher the interest rate will be. At the end of the term when the CD matures, the holder of the CD will collect both principal and interest accrued. CDs are insured through the Federal Deposit Insurance Corporation and the National Credit Union Share Insurance Fund (NCUSIF) if bought through a depositing institution that is insured. The NCUSIF is administered by the federal National Credit Union Administration agency. It insures member savings in federally insured credit unions, just look for the NCUA logo. Make sure the institution you are buying from is insured by either of these organizations. When shopping around for CDs you might come across different types. Here are the basic ones you’ll find.

Money Market Accounts

Money market accounts are high interest earning accounts. These typically pay a higher rate than regular savings accounts and are offered in a variety of ways. There are two government insured money market accounts. One is the super NOW account and the other is the money market deposit account.

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