Maintaining a diverse financial portfolio helps reduce investment risk and generates greater returns. Part of that balanced approach involves incorporating assets that provides a fixed time period for savings and flexibility. If you're considering adding a Money Market or Share Certificate (or CD) as part of your portfolio strategy, it’s essential to understand that both are valuable assets but with slight differences.
Simply put - one provides a fixed time period for your savings while the other offers flexibility. But a deeper understanding could help you better prepare to build an actionable portfolio that achieves your financial and quality of life goals.
Low Risk and Steady Returns
Dabbling in the stock market means your investment potential fluctuates with market conditions – which may bring big gains but even greater losses. Each investment option is specifically designed to deliver a select number of benefits, over and against a risk threshold. Items like share certificates (or CDs) and money markets are considered low-risk opportunities offering more bang for your buck than other investment options as well as less risk.
Guaranteed Returns
Not only do you get peace of mind knowing both share certificates (or CDs) and money market accounts are secure, but you can also rest assured knowing your money is guaranteed returns. Share certificates (or CDs) provide a fixed return, helping you grow your money faster than in a traditional savings account. The best share certificates (or CDs) offer an Annual Percentage Yield (APY) that compounds interest throughout the year. You may notice periodic share certificate (or CD) growth as the compounded interest is added to the certificate. The greater the frequency, the better the return when the share certificate (or CD) matures.
Playing the stock market can be a lot like spending a weekend in Las Vegas. By contrast, money markets deliver steady returns without any surprises. Money markets also offer a higher Annual Percentage Yield (APY) compared to regular savings accounts but unlike a term share certificate, your growing potential increases as your balance grows. Money markets are designed with tiered thresholds; the higher your balance the more opportunity to earn.
Families also use money markets to save for important expenses such as weddings, college tuition, and unexpected emergencies.
Advantages of Share Certificates (or CDs) vs. Money Market
As you conduct your due diligence about share certificates (or CDs) versus money market you may discover that there are advantages to options. Deciding which option best suits your needs depends on your financial goals.
Benefits of Share Certificates (or CDs)
Share certificates (or CDs) offer a variety of terms between six months and five years. Once the share certificate (or CD) matures — i.e., completes its full term — you can withdraw the initial deposit plus the accumulated interest. These are other benefits people enjoy by incorporating term share certificates (or CDs) into their portfolios.
- Lock in Rate: If you like a rate and want to lock it in for a set-period of time, a share certificate (or CD) may present the right opportunity for you.
- Diversify Your Earnings: A share certificate (or CD) allows you to create both short and long-term goals. You can open multiple share certificates (or CDs) each at different terms allowing you to diversify your earning potential with difference balances and at different interest rates.
- Creates Savings Habits: Because share certificates (or CDs) require you to tuck away a lump sum for a set period of time, it can help you create savvy savings habits by deterring you from accessing it before the maturity date.
It’s also essential to note that when you open a share certificate (or CD) you can calculate returns during the fixed time period. Savvy investors check for the best rates and re-invest.
Benefits of Money Market Accounts
When compared to share certificates (or CDs), the critical benefit appears to be the flexible access to cash, or “liquidity,” as financial insiders call it. But when deciding how much to invest in money markets, there are other things to consider. These rank among the reasons working families benefit from money markets.
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Accessibility: You can access your money up to six times per month via check, electronic withdrawal, or transfer without paying a fee.
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Grow Your Earning Potential: Money market interest rates are tiered and dependent on your minimum balance for maximizing earning potential. You may regularly add funds in order to continue to build higher gains.
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Supplemental Savings: You can use a money market alongside a specialized savings account to save for a financial goal or tuck away funds for a rainy day while earning a higher dividend than a traditional savings account.
Families also use money markets to save for short-term savings goals. With convenient access to funds, you can use your money whenever you need it.
Factors to Consider: Share Certificates (or CDs) vs. Money Market Accounts
To make an informed decision about whether a share certificate (or CD) or money market account is right for you, requires thoughtful consideration. A certificate of deposit account, for example, does not allow free, flexible access to your cash. Withdrawing funds before the maturity date may result in early withdrawal penalties, meaning you forfeit a portion of your earned dividends.
Similarly, money market accounts usually require maintaining a minimum balance. The threshold isn’t generally difficult to manage, but some high-yield money markets may require more significant minimum balance requirements. With either option, be sure to conduct your due diligence about available rates, terms, and minimum balances, as well as any applicable fees.
Allegiance Can Help You Optimize Your Savings Potential
As you may see, both savings options provide excellent benefits. In terms of building a balanced and diverse financial portfolio strategy that offers guaranteed returns with little risk, it may be wise to invest in both. But the real decision is how much to allot to term share certificates vs money market accounts.
If you’re ready to start optimizing your savings potential, we’re excited to help you achieve your financial goals! Contact us today, we’d love the opportunity to help!