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Comparing CD to money market certificate

Dear Dr. Don,
What is the difference between a certificate of deposit and the money market certificate offered by my credit union?
-- Paul Parallels

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Dear Paul,
Credit unions are financial institutions that are owned by their depositors, not by stockholders. What are called "deposits" at banks are called "shares" at credit unions and these shares earn dividends, not interest.

Shares insured by the National Credit Union Share Insurance Fund, or NCUSIF, are backed by the full faith and credit of the United States government, just like FDIC-insured deposits held at a bank.

A money market instrument is a debt security with a final maturity of a year or less. In contrast, a certificate of deposit, or CD, can have many different maturities. Bankrate tracks CD maturities ranging from three months to five years and includes credit union offerings in the mix.

Bankrate defines a share certificate as "a certificate of deposit issued by a credit union that pays a specific dividend if held for a specific period. It's the credit union equivalent of a certificate of deposit. A penalty is usually assessed if all or any of the principal is withdrawn before maturity."

So, the money market certificate offered by your credit union is a term investment with a final maturity of less than a year. It's comparable to bank CDs with final maturities of less than one year.

Bankrate.com's corrections policy -- Posted: Jan. 24, 2006
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