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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
•
Bankrate.com |
Short-term Investing
Dear Dr. Don,
I set aside $10,000 that I am not planning on using
for at least a year. Is it better to put it in a money market account
or a CD?
Louie Loan
Dear Louie,
If you are absolutely, positively sure you won't need the money
over the next year, then a CD should offer a yield pickup over a
money market account. It's time to go shopping. Use Bankrate's Rate
Search feature
whether you're just shopping in your market or want to see what's
available nationwide.
Here's what I found in Bankrate's home market:
| Short-term vehicle |
West Palm Beach, Fla. |
Nationwide |
| Money Market Account (APY) |
2.15% |
2.15% |
| 1-year CD (APY) |
2.25% |
2.27% |
| 1-year Treasury Security |
1.41% |
1.41% |
Virtual
Bank, which happens to be headquartered in Palm Beach Gardens,
Fla., offers the highest yield nationally on a money market account.
While the U.S. Treasury no longer offers securities maturing in
a year, outstanding longer term issues with a year remaining until
maturity are currently priced to yield 1.41 percent.
Limiting yourself to local financial institutions
can reduce your return. Nationwide, the interest rate on a one-year
CD did beat out the money market account, but only by about one-tenth
of a percentage point. Remember that the interest rate on a money
market account is variable, so you can't count on earning that return
over the full year.
-- Updated: April 28, 2004
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