You may have seen recent ads exclaiming that interest rates for certificates of deposit (CDs) and money market accounts are exceptionally high. These claims are music to the ears of investors, but if you’re not as comfortable investing, you might be missing out on an easy opportunity to boost your wealth. If you think CDs are just anachronistic audio devices and money markets are places you shop for bills and coins, Camden National Bank is here to spin some knowledge and help determine which option is best for your budget.
Setting the record straight on CDs:
A certificate of deposit is a financial product that guarantees the customer a premium interest rate in exchange for leaving an agreed-upon amount of money in an account for a fixed period, which can vary from three months up to 10 years. Longer terms generally yield higher interest rates. Think of it like a game show: The longer you think you can go without touching your money, the more interest you can earn at the culmination of the set term. After that time elapses, you are free to withdraw your funds—which have since recorded an increase in value.
Are CDs the right track for me?
Are you financially responsible but risk-averse or unfamiliar with investing? If so, don’t hit “skip” on CDs and simply store your money in a savings account, which carries no risk of loss but will earn a lower amount of interest. Instead, if you already have untouched funds in an account and no urgent need to make a major withdrawal, shuffle up your usual strategies and consider a CD. They’re easy to open, and minimum deposits vary by bank, but generally, only $500 to $1000 is required.
It’s tough to get burned by a CD
Unlike investing in stocks or bonds, certificates of deposit are FDIC-insured, carry no risk of losing money, and offer a guaranteed return as long as the funds remains untouched. However, if a customer changes their tune and experiences a financial situation that requires a withdrawal, they will forfeit any interest earned by the CD and may also pay a penalty.
Adding a money market account to your financial shopping list:
Money market accounts are similar to savings accounts—they’re a place to store your money and earn interest along the way, while allowing you the flexibility to make withdrawals and deposits. Higher yields are possible simply because banks invest the funds for these products in short-term, low-risk assets in exchange for you agreeing to keep a minimum balance and limit your number of transactions.
Checking out a money market account
If you have some financial stability and are shopping for a way to boost your savings, money market accounts are a reliable way to accumulate extra interest. If you have time to spare, don’t make a lot of withdrawals, and can meet the required minimum balance, it can be convenient to store your funds in a money market account. The minimums are often set at the bargain rate of just $100, making these accounts accessible to many.
Investing in a reliable product
Don’t shelve your investment plans—there is little risk with money market accounts, as they are insured by the FDIC. The only money you may lose is a monthly maintenance fee, which you can avoid by keeping your account balance above a certain amount.
CDs vs. money market accounts—the bottom line:
Both CDs and money market accounts can earn higher interest rates than traditional checking and savings accounts, and like the latter options, they are both protected by the FDIC. If you have more money to deposit and more restraint, take advantage of the increased yields offered by a CD. If you are newer to saving and may need to make a few withdrawals each month, but are working with a longer timeframe, opt for a money market account. Regardless of which option you choose, Camden National Bank is here to help you manage your money and plan for your future. If you are considering either of these products, but want additional advice, stop in or give us a call 24/7 at 800-860-8821.
