Pros and cons: CDs provide interest income with relatively low risk and are insured for up to $250,000 by the Federal Deposit Insurance Corp, or FDIC, through Dec. 31, 2013. On Jan. 1, 2014, the standard insurance amount will return to $100,000. Likewise, CDs purchased at most credit unions are insured by the National Credit Union Administration, or NCUA for the same amount.If you try to cash out your CD prior to maturity, you will incur a penalty, such as the loss of interest for a quarter. Federal law requires a minimum penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit. The law doesn't set a maximum penalty, so banks can charge as much as they want. Another downside: Earned interest is subject to income tax.
Where to find them: You can purchase CDs at banks, credit unions and brokerage firms.
Caveats: Things could get complicated if you buy a CD through a broker and the bank listed on the CD fails. You may have to wait until the FDIC sorts through broker records before you get your money back, which can be a time-consuming process. Further, the FDIC only insures deposits up to $250,000. If you have more than $250,000 invested in a CD, the FDIC may provide you with a receivership certificate for the uninsured amount, but you get no guarantee that those funds will be reimbursed.
Words of caution: "If you have a little more time to tie up your money and possibly want a little higher return (than a savings account), you might want to go into CDs, ladder a portfolio and divide your money up among several maturities of CDs. Then, just keep replenishing the ladder every time one matures. CDs will give you a little higher rate than your bank accounts and generally, the longer you put the money away for, the higher the rate will be. Overall, people really should be investing with goals in mind, whether it's stock or fixed income or anything else. Don't just buy something because somebody wrote an article about it or somebody told you at the water cooler. It needs to be something that matches your own goals. So it's important to know what you're going to be using the money for." -- Barbara O'Neill, Ph.D., CFP and financial management specialist at Rutgers University in New Brunswick, N.J.
Money market accountsHow they're valued: A money market account, or MMA, is an FDIC-insured, interest-bearing deposit account. This type of account should not be confused with money market funds, which are mutual funds that normally are not FDIC-insured. MMAs typically earn higher interest than savings accounts and require higher minimum balances. In exchange for better interest earnings, consumers usually have to accept more restrictions on withdrawals, such as limits on how often you can access your money.