So I have roughly 20k I want to invest. I want atleast half of the money to be somewhat liquid atleast for the next year or so. My financial advisor who I just recently started working with suggested opening cd accounts and splitting the money between my PCOXX money market I have open, and a mix of CDs. I understand the pros and cons of each account and I value his opinion, however this is a new relationship and I would like some outside input. In my mind, the returns on both cds and money market are pretty similar, and Me opening a new account for cds would mean fees associated with it. I’m inclined to think the possible better return from cds would be negated by the fees as opposed to me just putting in all in the money market. And getting a slightly lower, fluctuating rate. What are your thoughts? I do also have both a 401k and ira open, as well as a managed stock market account and my own personal savings. So I’m not putting all my eggs in this one basket. I appreciate any advice! Thanks
Money market vs CD accounts
byu/Street-Helicopter758 ininvesting
Posted by Street-Helicopter758
7 Comments
They are different tools and can be smart to use both. Moneymarket your emergency fund and CD your planned future expenses to get guaranteed rate if you believe rates will fall over that time period.
If you need liquidity within a year, the main variable isn’t yield, it’s flexibility. CDs lock rate but reduce optionality; money markets float but preserve access. In a shifting rate cycle, the decision hinges on whether you value certainty of return or liquidity premium more.
I would put $10,000 aside in a bank account, and divide the other $10,000 equally into a CD ladder with terms of 1, 2, 3, 4, and 5 years, each of $2,000.
When the 1 year CD matures in a year, you roll it into a new 5 year CD.
When the 2 year CD matures in two years, you roll that one into another 5 year CD.
You then repeat this step with each CD until all of the money is invested in 5 year CDs. At that point, the first 5 year CD you purchased will mature, and each year after that another CD will mature.
The benefit of this approach is that you’ll start earning the higher interest rate of longer-duration CDs, but have regular access to cash each year as one of those CDs matures. Doing this at a normal bank should not incur any fees, though you will need to pay taxes in the interest. I would not invest in the money market fund your advisor suggested.
Best of luck to you.
CD’s are for when you know the exact date of the spend. Short term money just money market or something like SGOV if you’re using a self managed broker like Fidelity.
I generally tell my clients their emergency fund is safer with me in a money market than in HYSA or SGOV in self managed account (people just tend to tap into it more in my experience).
I generally tell people to not bother with CD’s. The difference in yield is generally negligible.
Have a plan to auto invest, your advisor should be pushing you to spend less and invest more auto, putting you into financial planning software. Emergency fund in money market is fine.
I would figure out what money I needed and when, then take that into account when building a CD ladder. And just keep rolling over what I don’t need until I decide to move on to another investment.
Money Market Rates have dropped from 5.25% to 3.25% in the last few years. They are still falling.
The smart money would have got a 5.25% CD two years ago.
honestly the money market feels like the move right now, especially if you want to keep things liquid. why deal with cd penalties when rates are so similar?