Certificate of Deposit

Archive for February, 2010

Question: Money Market acct. vs. Savings acct?

My fiancee and I are opening a savings account this weekend, and want to know the difference between a traditional savings account and a Money Market account. I know the APY is higher in Money Market accounts, as well as the minimum to open.

We have a bank we are opening it with, but want to know the basic differences before we meet with the bank this weekend.

Are Money Market accounts risky?
Could i LOSE the money we put in?
Can you withdraw from savings accounts or are there stipulations in doing so?
Can I open a traditional savings now and transfer it to a Money Market later when we have the funds available?

Any insight would be helpful. I’m most concerned with the risk factors in Money Market accounts. Thanks.

Answer: Money markets do have a higher rate and like all savings accounts at a bank are FDIC protected up to $100K, but some savings accounts are just as high or higher. You won’t lose your money. Check on the terms as some limit the amount of withdrawls you can make monthly or quarterly. Yes, you can transfer the money too. You may also want to look into higher interest rate savings accounts at your bank too. The Ultimate Money account at Citibank has higher rates than their MM accounts (4.0%) with no minimum and free check writing, bill pay, etc… Other online banks offer great rates too, like ING Direct or Emmigrant (about 3.6% right now)- Good Luck and shop around.

Investment Advice : About Money Market Accounts

Question: With interest rates rapidlyincreasing, should I lock in a CD acct or need I consider an alternate route?

It seems that so many financial institution are offering their competitive promotional CD interest rates. I would like to jump on the bandwagon in putting more funds in a relatively high yield acct. However, I am afraid to lock in funds in a long-term account versus leaving it in a demand account or a Money Market account.

Answer: Go to Citibankonline.com Check out the E-savings account. It is the best for liquid money at 4.75% And as rates go up, so will the rate. Best for short term money.

For over a year, look at a floating rate mutual fund. It buys shorterm corporate debt, and gets you about 5.35 to 6% interest.

XLACX or Highland Floating Rate Advantage class C is the best choice. Remember, you need to keep the money in the fund for 1 year, or their is a 1% penalty.

Glendale Federal Bank w/ High Interest Rates commercial 1979

Question: I’m 23 & I want to start investing with the money that I’ve saved so far. But I don’t know how…?

So I have some money saved (around 40k) and right now I have it sitting in a Certificate Of Deposit— it will become available in a few weeks and I want to invest at least 50% of that money. However, I am confused. Where do I go? I want a reputable company (person) to handle my money — I worked very hard for it and sacrificed a lot in the process of saving and I want it to grow not deplete. What sort of investments should I look at? What are the fees and taxes involved in investing? i am kinda clueless when it comes to this but I understand the concept as a whole (I took a few finance classes).

Answer: Here should be your priorities:

1. Contribute enough to your 401k to get the company match (if you’re employed and if they offer one).

2. Max a Roth IRA. You can put in $4000 this year and $5000 next year. Roth’s are such a great deal (because you NEVER pay taxes on them and they’re super flexible) that the govn actually limits the amount of money you can put it. DO IT. You have to have earned income to do this though (research IRAs at www.fool.com–too much to explain here). Put the money in a target retirement date fund and forget it. I use Vanguard–Fidelity is a good choice too. No fees, low expense ratios, great reputations, great performance history.

3. Put enough aside in a high yield savings/Money Market for emergencies plus any big unusual expenses you anticipate making in the next 2 years. For instance, if you’re going to buy a $30000 car in a year, keep $30000 plus emergency money in cash–don’t put it in stocks. Make sure you’re getting over 5%–savings accounts and money markets are paying more than CDs right now in many places. I use Vanguard Prime Money Market (5.22% in May).

4. Now that you’ve done the above things, you can invest outside your retirement accounts! If your goals are short term, stick with cash. For longer term goals, stick to index funds. Boring, but your BEST bet. They minimize taxes and fees, have no commissions to pay, and parallel the market returns (which most mutual funds lag even before fees are paid).

Credits, Stocks & Pension : How Does a Bank CD Work?