Share Certificates vs. CDs vs. Money Market Accounts

by Spero Financial

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What is the Best Short Term Investment Option for Your Finances?

Saving is smart. Investing is savvy. But when it comes to making your money work for you, there’s a catch. Traditional savings accounts rarely offer attractive rates, and popular investments (401Ks, IRAs, Roth IRAs, etc.) tend to tie up your money for a long time. If you want to earn higher rates on your money but avoid early withdrawal penalties and complicated tax considerations, what can you do? According to many financial experts, investing in share certificates, certificates of deposit (CDs), or money market accounts can be an excellent way to diversify your earnings. But how do you know which option is best for you? Let’s compare, shall we?

Share Certificate vs. CD: What’s in a name?

Before we go any further, let’s address one crucial detail — a certificate of deposit (CD) and a share certificate are essentially the same thing. The most significant difference is that CDs are issued by banks and share certificates by credit unions. While there are subtle distinctions like the fact that CDs earn interest while share certificates yield dividends, each product functions in much the same way — you agree to let your financial institution hold a specified amount of money for a set amount of time. In exchange for your deposit, the bank or credit union agrees to pay you a certain rate of return on your money, which you collect at the end of the agreed-upon term.

Now that we’ve established the fact that CDs and share certificates are two different names for the same product, we will focus our conversation on share certificates for the remainder of this comparison. (This is a credit union blog, after all.) With that being said, are share certificates the only short-term savings option you should use to grow your money? Probably not. Money market accounts also offer some attractive benefits worth considering.

Share Certificates vs. Money Market Accounts: Which is right for you?

As with any financial products, share certificates and money market accounts provide unique sets of advantages and disadvantages. Both give you an opportunity to let your money earn dividends, which certainly counts as an advantage. However, since each product comes with its respective pros and cons, we recommend learning as much as possible before investing. This research will allow you to make an informed decision, which is always the best kind of decision to make.

Share Certificates

Advantages of Share Certificates:

  • Your rate of return is guaranteed.
  • Fixed term lengths allow for easy financial planning.
  • Share certificates generally offer higher rates than those available on checking, savings, or money market accounts.
  • Your money is safe. All funds invested are federally insured by the National Credit Union Administration (NCUA) up to $250,000. 

Disadvantages of Share Certificates:

  • Share certificates generally require a minimum opening deposit of $500 to $1000.
  • You won’t be able to access your funds before the term ends. (Not without paying a penalty.)
  • There’s opportunity cost involved. Since your money is tied up for the length of the term (traditionally between 6 – 48 months), you won’t be able to use it to fund other investments during that time. 

Share Certificate Summary:

If you’re looking to stabilize your investment strategy, share certificates are a safe, reliable option for gaining guaranteed returns in relatively short periods. 

Money Market Accounts

Advantages of Money Market Accounts:

  • Money market accounts combine the liquidity of checking accounts with yield rates higher than traditional savings accounts.
  • Money can be conveniently withdrawn using checks or debit card.
  • Your money market deposits are federally insured by the National Credit Union Administration (NCUA) up to $250,000. 

Disadvantages of Money Market Accounts:

  • Opening a money market account usually requires a large initial deposit. (Usually ranging from $500 to 2,500)
  • Accounts carry minimum balance requirements and monthly withdrawal limits.
  • While they offer higher rates than standard savings accounts, money market accounts rates are lower than you could potentially earn with other investment options.

Money Market Account Summary:When you want to earn better rates on your savings while maintaining access to your funds, money market accounts offer an attractive combination of higher yields and flexible accessibility.

At Spero, our entire team is committed to improving the financial lives of our members. From regular savings and checking accounts to share certificates and money market accounts, our products and services are designed to help you maximize your money and secure your financial future. Whether you need to open a new account or create a strategy for future investments, our member service experts are ready to help. Call us or visit in person at a branch location today!

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