| VERY NEWBIE QUESTION - Money Market vs. CDs |
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KB1DFD
New Member
Cash: $ 0.70
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Joined: 26 Nov 2005
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| VERY NEWBIE QUESTION - Money Market vs. CDs |
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Well I am 22 years old and I have a Roth IRA. I have invested the majority of my money into a mutual fund and have received a 16% return thus far.
My other money remains in a money market account with a 1 year average yield of 2.57%.
Now my question is, wouldnt I be better off putting this money into a CD where I can get a 1 year yield of 4.5% ? On top of this having the money FDIC insured will offer me greater piece of mind. Any drawbacks to this? Your suggestions?
(I know a CD is a poor investment with generally low returns, but at this point my IRA is more of a retirement savings account rather than an investment account. I am not comfortable enough with the stock market and am not looking to make investments with high volatility)
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Sat Nov 26, 2005 7:51 am |
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auggyf
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Location: San Francisco
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| Re: VERY NEWBIE QUESTION - Money Market vs. CDs |
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If you know for sure that you will not be needing this money in the next year, getting a 1-year CD is a reasonable thing to do. You can also look at bonds that mature in a year.
When you are checking CD yields, make sure you are getting a competitive rate. Shop around and see that you are getting a good deal. Also, when you are comparing this to the MM yield, keep in mind that the MM's yield for the past year is different from the current yield and likely is different from the average yield from now until a year from now. Short term yields are higher now than they have been in the past year (as short-term interest rates have been rising), and the market is predicting that these interest rates will go up in some way over the next year. That is why I suspect the 1-yr CD will have a higher yield than the current MM yield.
So sorry to ramble, but if you feel like you don't need the liquidity for the next year, check rates and getting a good 1-yr CD should be fine. Staying in a MM account should be fine too and probably will have yields similar to that of the CD, but with some uncertainty (we don't know how MM yields will fluctuate in the next year). Vanguard's taxable MM fund is currently yielding 3.79%, and there are some FDIC insured savings accounts that are yielding 4% or a little bit more.
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Sun Nov 27, 2005 3:31 am |
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KB1DFD
New Member
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Joined: 26 Nov 2005
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auggyf thank you for the reply your information is much appreciated.
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Tue Nov 29, 2005 3:55 am |
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