Money Market vs CD vs Savings Accounts: What Are The Best Cash Investment Options?

Are you looking to invest your cash but don’t know where to start? Have you been trying to decide whether to invest in money markets, CDs, or keep your cash in a savings account? When it comes to investing your cash, there are a variety of options available. It can be overwhelming to navigate comparing account types such as a money market vs CD or a money market vs savings account, but don’t worry! We’ll break down some of the most popular cash investment options and give you strategies to help you make the best decision for your money.

Whether you’re a seasoned investor, new to the world of investing, or just curious about the difference between the cash investment options, we will provide you with help navigating the best cash alternative investment options. As always, you should consult with a financial professional on your particular situation but we hope this article helps you understand the various options and how to compare them.

We will compare money market accounts to CDs and savings accounts, explain the different cash alternative options, and the steps to choosing the right cash investment option. By the end of this blog, you’ll have a better understanding of how to maximize your cash investment.

What Are The Alternative Cash Investment Options?

When it comes to cash investment options, there are a number of different strategies you can use to earn extra interest on cash. From savings accounts to certificates of deposit (CDs) to money market accounts. This section will cover the basics of these three cash alternative investments. 

1. What are Savings Accounts?

Savings accounts are the most common type of cash investment option. They are offered by banks and other financial institutions and provide a safe, low-risk way to save money. Savings accounts generally offer competitive interest rates, and most offer additional benefits such as immediate withdrawal, ATM access, and online banking.

2. What are Certificates of Deposit (CDs)?

Certificates of Deposit (CDs) are another great cash investment option. CDs are offered by banks and other financial institutions and typically require a minimum deposit to open. CDs offer a fixed interest rate, and the longer the term, the higher the interest rate. CDs are a great way to earn extra interest on cash, as long as you are comfortable with the terms and conditions of the CD.

3. What are Money Market Accounts?

Money market accounts are similar to savings accounts but typically offer higher interest rates. Money market accounts are also offered by banks and other financial institutions, and typically require a minimum deposit to open. Money market accounts are a great option for those looking to earn extra interest on cash without taking on too much risk.

4. Cash Alternative Investments

Cash alternative investments include options like short-term bond funds, money market funds, and high-yield checking accounts. These investments offer higher interest rates than traditional savings accounts and are considered to be less risky than stocks and bonds. 

Navigating your cash investment options can be overwhelming, but it’s important to remember that the best option for you will depend on your individual circumstances. Consider factors like your risk tolerance, time horizon, and cash flow needs when making your decision.

Money Market vs CD vs Savings Accounts

No matter which cash investment option you choose, it’s important to do your research and compare the different options available to find the best option for you. 

Each cash investment option comes with its own risks and rewards, so it’s important to understand the options and make an informed decision. 

With the right cash investment option, you can earn extra interest on your cash and reach your financial goals. In this section, we will compare popular cash investment options.

1. Money Market vs CD (Certificate of Deposits)

First, let’s discuss money market accounts vs CDs. Both of these options offer higher interest rates than traditional savings accounts, but they also come with different terms and conditions. 

Money market accounts are liquid, meaning you can access your money at any time without penalty. CDs, on the other hand, have a fixed term and if you withdraw your money before the term is up, you’ll typically have to pay a penalty. 

So, if you need access to your money in the short term, a money market account might be a better choice. But if you can commit to keeping your money in the account for a longer period of time, a CD may offer a higher interest rate. This is how to decide between a money market vs CD account.

2. Money Market vs Savings Accounts

Now we will compare money market accounts to savings accounts. Both of these options are FDIC-insured, meaning that the government will protect your money up to a certain limit. 

However, money market accounts typically offer higher interest rates than savings accounts. They also have higher minimum deposit requirements and may have monthly maintenance fees. 

So, if you have a larger amount of cash to invest and don’t mind paying a monthly fee, a money market account might be a better option. But if you have a smaller amount of cash or don’t want to pay a monthly fee, a savings account might be a better choice when choosing between a money market vs savings account.

Steps to Choosing The Right Cash Investment Option

1. Assess your financial situation: 

Before you invest your cash, you need to assess your financial situation. To do this, take a look at your cash flow needs, risk tolerance, and time horizon to determine. These steps will help you decide what type of cash investment option is best for you.

2. Research your options: 

Next, you need to look into different cash investment options, such as money market accounts, CDs, savings accounts, and cash alternative investments. Compare their interest rates, terms, and conditions to see which one aligns with your financial goals. 

As we discussed earlier, the most popular options are:

Money market accounts: Liquid investment option with higher interest rates than traditional savings accounts, but may have higher minimum deposit requirements and monthly maintenance fees.

CDs: Fixed-term investment option with higher interest rates than traditional savings accounts, but you may have to pay a penalty if you withdraw your money before the term ends.

Savings accounts: Low-risk option with FDIC insurance, but typically lower interest rates than money market accounts.

Cash alternative investments: Higher-yielding options like short-term bond funds, money market funds, and high-yield checking accounts, which are considered less risky than stocks and bonds, but have different terms and conditions.

3. Diversify your investments: 

Consider spreading your money out across different types of cash investments to reduce risk.

Diversifying your investments means spreading your money out across different types of cash investments. This helps to reduce your risk by ensuring that you’re not putting all of your eggs in one basket. If one investment performs poorly, the others may still be doing well, which can help to balance out your overall portfolio.

As a beginner investor, it can be tempting to put all of your money into one investment, but it’s important to remember the importance of diversification. Here are a few ways to diversify your cash investments:

• Spread your money across different types of accounts: Instead of putting all of your money into one account, such as a money market account, consider splitting it up between a money market account and a savings account. This way, you’ll have access to your money in the short term and the opportunity to earn a higher return on your money over time.
  
• Invest in different types of cash alternative investments: Instead of just investing in one type of cash alternative investment, such as a short-term bond fund, consider investing in a few different types, like a money market fund and a high-yield checking account.
• Consider different maturities of CDs: Instead of just investing in one CD, consider investing in CDs with different maturities. This way, you’ll have access to your money at different times.

It’s important to keep in mind that diversification does not guarantee a profit or protect against a loss, but it can help to spread out the risk of loss. Additionally, it is important to consult a financial advisor before making any investment decisions.

4. Keep an eye on the market: 

As market conditions change, it’s important to re-evaluate your investment options and make adjustments as needed. This way, you can ensure that your cash investments are still aligned with your financial goals and risk tolerance.

One of the best resources to find information on the market is The Federal Reserve, also known as The Fed. They provide a wealth of information on interest rates, monetary policy, and economic indicators that can help you understand the overall state of the economy.

5. Consult a financial advisor: 

If you’re unsure about what option is best for you, consider consulting a financial advisor who can help guide you through the process. 

If you need advice on what to ask a financial advisor, check out this blog post.

What Is The Best Cash Investment Option?

When it comes to strategies for investing your cash, it’s important to have a mix of short-term and long-term investments. This way, you’ll have access to your money in the short-term, while also giving yourself the opportunity to earn a higher return on your money over time. 

Additionally, it’s important to diversify your investments, which means spreading your money out across different types of cash investments.

So, what are the best cash investment options? 

It really depends on your individual circumstances. Money market accounts and CDs are great options for those who need access to their money in the short-term and are willing to commit to keeping their money in the account for a longer duration. 

Savings accounts are a great option for those who have a smaller amount of cash or don’t want to pay a monthly fee. And cash alternative investments, like short-term bond funds and money market funds, can offer higher returns than traditional savings accounts.

Cash Investment Options Summary

Investing your cash can be a great way to earn a higher return on your money. By understanding the different options available to you, diversifying your investments, and consulting with a financial advisor, you can make an informed decision and choose the best cash investment option for you. 

Schedule your free 10-minute consultation today with one of our wealth management professionals to learn more about your options for investing your cash and building a comprehensive portfolio for your future. Our capabilities go beyond typical financial advisor services. Your Wealth Manager will work side by side (literally) with your CPA to ensure your individualized financial planning strategies and wealth management goals align to do what’s in the best interest of you and your loved ones. Schedule your free consultation today!