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Dr. Don Taylor, CFA, Bankrate.com advice columnist Seeking best way to invest savings

Dear Dr. Don,
What is the best way to invest my savings? I have about $5,000 and I want to either put it in a CD or a MMA. I don't know where to start. Please help.
-- Kymberly Certificates

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Dear Kymberly,
First ask yourself how likely it is that you'll need to have access to the money. You don't want to pay an early withdrawal penalty to cash in a certificate of deposit, or CD.

If you don't need the money to be readily available, you can look at locking in an interest rate with a CD. If that's the route for you, then compare CD and investment rates in your market or nationwide using Bankrate's comparison tools.

A money market account, or MMA, is more liquid than a CD and typically has limited check-writing privileges. You can also shop for money market accounts on Bankrate.

If you don't have an emergency fund, then I suggest you use at least part of this $5,000 to establish one. In general, an emergency fund should represent three to six months worth of living expenses. You can learn more about emergency funds on Bankrate.

Beyond any need to fund emergency savings, ask yourself what you want from this investment. It's generally a good idea to match the horizon of the investment with when you plan to use the money. If you're 20 years from retirement, and this $5,000 represents retirement savings, you should be considering investments other than money market accounts and three-month to five-year CDs.

If you do invest in a CD or MMA, make sure the deposit is FDIC- or NCUSIF-insured. You should also take a look at the financial institution's Safe & Sound rating available on Bankrate.

To ask a question of Dr. Don, go to the "Ask the Experts" page, and select one of these topics: "financing a home," "saving & investing" or "money."

Bankrate.com's corrections policy-- Posted: Feb. 6, 2007
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