Certificate of deposit (or CDs for short) are debt instruments issued by banks and other financial institutions to investors. In exchange for lending the institution money for a predetermined length of time, the investor is paid a set rate of interest. Maturities on certificates of deposit can range from only a few weeks to several years with the interest rate earned by the investor increasing in proportion to the time his capital is tied up in the investment.

Pros: The investor can calculate his expected earnings at the outset of the investment.

Professional money managers will take the funds deposited in the money market and invest them in government t-bills, savings bonds, certificates of deposit, and other safe and conservative financial instruments. This income is then paid out to the owners of the money market.

Investors can open a money market account at most financial institutions. They generally receive a checkbook with which they can draw upon funds in the account.

Pros: Depositing money in a money market is as easy as depositing cash into a savings or checking account. Cash is immediately available for alternative investments.

Cons: Some financial institutions place a limit on the number of checks that can be drawn against the account in any given month. The rate of interest is directly proportional to the investor's level of deposited assets, not to maturity as is the case with certificates of deposit. Hence, money markets are disproportionately beneficial to wealthier investors.

The verdict

Although both can be useful, for those who need access to their capital, money markets are far superior. Many brokerage houses automatically sweep their customer’s uninvested cash into money markets to earn interest between investments. This is the ideal solution if you regularly invest because the funds can be used immediately to purchase stocks, bonds, or mutual funds.

What is a “core account”? It is an account that is considered standard and is a product that major financial institutions offer their customers. With this in mind, if someone were to ask you what a “core account” consisted of, what would be the correct answer?

If you were thinking about a checking and a savings account, you would be partially correct, as checking and savings accounts are accounts that are considered standard and are products available at any financial institution. But they are only part of what is considered “core accounts”, the other is the money market account.

The money market account, like the checking and savings account, is another “stand alone” account. In other words, whereas the money market account has many of the same features desirable in a checking account and a savings account, it does not really belong to either classification.

Also, by individualizing the account, it avoids the stigmas associated with having a checking or savings account. Such as, checking accounts come with the stigma of having little to no interest, hence the need or desire to have a savings account.

And a savings account comes with the stigma of having low interest as compared to most Certificate of Deposit and the inability to write checks. The money market account, takes this into consideration, in that it allows you to earn a higher interest rate and at the same time allows you to write 3 checks per month.

So, not only are you earning a higher interest rate then any checking or savings account could possibly ever earn, but you’re also able to write 3 checks per month as well, something a savings account could never do. Also, money market accounts, not to be confused with mutual Funds, are backed by the FDA just like the checking or savings accounts.

There are several different types of money market accounts: one is the money market checking and the other is the money market savings. The money market checking account is the most widely used, because it offers customers the ability to earn higher interest and to write three checks per month.

Whereas the money market savings, although labeled “savings”, tends to earn a lower rate of interest than a money market checking account, at this time. It is for this reason, that most financial institutions will only list the Money market checking account as one of their core products. And why, any further mention of Money market accounts will deal strictly with the Money market checking account only.

Money market accounts have an opening balance of $2500.00*, and a minimum balance of $500.00*. They are also based on balances kept within the account and are tiered. A depiction of the standard tiered rates are as follows (for a more accurate rate contact your financial institution):

The amount that is being “sweeped” is decided by the owner of the account. So, the owner has full control over his/her own “investment””. This feature is very attractive for those looking for a high return on their savings, as it offers a higher ‘dividend” or interest than most certificates of deposit offer.

It is also a feature that was originally only offered to high income businesses. By high income, we’re talking about funds left in a checking account that is over $100,000, with additional accounts on the side.