Tuesday, October 30, 2007

Short Term CD's or Money Market Accounts?

My niece from Wisconsin called me last night to ask about investing. Seems she's getting a lump sum insurance payout and she doesn't really know what to do with it, but she didn't want to blow the money. We discussed several different investment options including stocks and mutual funds, but she seemed more interested in something simple that would give her some income and protect her from loss of capital. We got in to a discussion of laddering certificates of deposit as compared to investing in a money market account. Both options are relatively safe investments, although the returns are pretty lackluster. I told her that I've never invested in certificates of deposit because I don't want to tie up the money. But I certainly see the appeal and the good sense of purchase a 6 month CD, one per month for six months and then having them mature each month thereafter. I personally have always preferred money market accounts. The interest rate is comparable to CD's and the liquidity allows for easy transfers in and out of the account. My money market account at my brokerage provides a convenient way for me to transfer cash to and from my investment account. It also allows me to earn money on the cash from stock sales until I've decide where to re-invest the capital. She decided to invest her money in CD's since she has very little knowledge of stocks and mutual funds and she may have need of the cash in the near future. For now though, I think I'll stick with the money market accounts.

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