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Short-term investing

Dear Dr. Don,
We sold some land, and need your advice on where to put this money. We will build a new home next year, and will need the money at that time. We want to put the money into something that will have a high interest rate, but yet will be able to get it out next March. Please help us. Also, what is the difference in money market investments and CDs?
Janie Jargon

Dear Janie,
When you're investing for a short-term financial goal, you don't want to take on much risk in your investments. The more conservative your investments, the lower the expected return. Taken together, that means that safety of principal is more important to you than the investment's expected interest rate.

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When I wrote this reply you could invest in a one-year certificate of deposit and earn 3.25 percent by using Bankrate's Best Rates feature to find a high-yielding CD. You can use the same feature to find the best rates in your market.

A money market investment is a short-term debt investment that matures in less than 13 months. CDs can be considered money market investments if the term of the CD is less than 13 months.

Money market mutual funds are mutual funds that invest in short-term debt securities. Even though they can invest in longer-term money market debt, a money market mutual fund will have weighted average maturity of 90 days or less.

A money market account can be FDIC insured while money market mutual funds are not FDIC insured, but money market accounts are limited in the number of financial transactions that can take place in the account each month. Money market mutual funds may charge transaction fees, but since you don't expect to generate a lot of transactions in the account, that shouldn't be a concern.

-- Posted: Feb. 21, 2002

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See Also
Best and safest fixed income investments
A look at no-risk investments
More Dr. Don stories

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