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Janice France-Pettit: CDs and money market funds: Safe options for cash

It’s Your Money

Posted: October 2, 2009 10:13 p.m.
Updated: October 3, 2009 4:55 a.m.
With the stock market twisting and turning like a roller coaster these days, you might not have the stomach to hang on, especially if you are nearing retirement age.

Looking for a respite from this rough ride, many of our clients in the Santa Clarita Valley region are turning to proven methods of saving cash - CDs and money market accounts. These staples of banking are safer, can have higher yields and are insured by the Federal Deposit Insurance Corporation.

It's a good time to review what these types of savings accounts offer, specifically the terms you can get to help protect and grow your hard earned savings.

Certificates of deposit
Better known as CDs, these time deposit accounts allow you to invest a fixed sum of money for a fixed term, from a few months to several years.

In return for your agreement to allow the bank to keep your money for a pre-determined time period, the bank guarantees you an interest rate - usually higher than a checking or savings account.

The drawback is the penalty for accessing your money early, which might make it hard if you need the cash before the CD matures. It may be a great fit if you don't need immediate access to your funds and want a guaranteed rate of return.

CDs also have the benefit of being FDIC-insured, providing added security. On May 20, President Barack Obama extended the temporary increase in the standard maximum deposit insurance amount, from $100,000 to $250,000 per depositor, through December 31, 2013.

When you buy a CD, you may want to consider the rate that you will yield on your money. If you'd like to see how much interest you can earn on a Certificate of Deposit, you may visit's CD Interest Earnings Calculator.

This tool will forecast a detailed schedule of your CD's balance and interest earned, showing you how your money will grow.

There are non-IRA CDs and IRA CDs with different features and restrictions on minimum account openings, rates (with IRA CDs they can be variable), service charges, deposits, etc. Please be sure to ask your banker for all of these details before you open your account.

Money market accounts
If you need access to your cash, higher yielding money-market deposit or savings accounts may be a better option than CDs.

Unlike CDs, with these investments you can access your money the day after you open the account. Since these have higher minimum deposit amounts than a regular checking account, the rate of interest paid is higher.

You may also have check-writing privileges, but usually there is a limit on the total number of checks and transactions that you can have each month. As with bank accounts, the funds in money market accounts are insured by the FDIC.

Interest is variable depending on market rates and is compounded and paid monthly. Interest is also tiered, meaning the more money you have in an account the more interest you can earn.

Don't confuse bank money market accounts with money market mutual funds, which are regulated funds that own a collection of short term securities.

Reviewing these great risk-free options for investing your cash can help you make any necessary adjustments now to maximize your nest egg for the future.

This column is intended to provide general information about CDs and money market funds and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.

Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own views and not necessarily those of The Signal.


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