Investment Planning

By: TXRB Staff | 9 Jan 2023


Understanding the differences between CD vs. Money Market vs. Savings vs. IRA

There are many ways to invest your money, including CDs, money markets, and IRAs. Determining which is right for you depends on your financial goals, liquidity needs, and how much you have to invest.

What is a CD?

CDs are timed deposits, meaning you invest your money for a specific term. If you withdraw the funds before the CD matures, you may pay a penalty, so choosing a term you can leave the money untouched is best.

CDs pay a fixed interest rate and are available in varying terms, generally with a term as short as three months or as long as three years.

What is a Money Market?

A money market is a high-interest deposit account that’s a cross between savings and checking accounts. It’s more liquid than a CD because there isn’t a maturity date, and you can write checks from the account. However, you may only write up to six checks and/or conduct six withdrawals per month.

What is a Traditional IRA?

A Traditional IRA is a retirement account. The funds you contribute are tax-deferred. Any money you contribute plus its earnings grow tax-deferred until you withdraw the funds during retirement. If you wait until at least age 59 ½, you may not pay a penalty on the withdrawals, but you’ll pay your tax rate in effect at the time you withdraw them.

Choosing Between CDs, Money Markets, and IRAs

As you can see, each account works differently, so how do you determine which is right?

Here are some considerations:

  • How long are you investing?
    • IRAs are long-term investments. You can’t touch the funds until retirement (at least age 59 ½), and you’ll pay taxes when you withdraw the funds. If you can keep the funds tied up for a predetermined time (at least three months), a CD is preferable, but if you need the funds liquid, choose a money market.
  • Have you maxed out your IRA contributions?
    • Each year, the IRS sets IRA contribution limits. In 2023, you can contribute up to $6,500 in your IRA and an additional $1,000 annually if you’re over 50 years old. If you’ve maxed your IRA contributions, looking at other products, such as CDs and money markets, keeps your money growing without the tax benefits.

Final Thoughts

Saving money is essential, and understanding how to maximize your earnings will help you reach your financial goals. Texas Republic Bank offers many deposit products to help you meet your goals. Contact us today to see what we offer and how to maximize your earnings for goals such as buying a house, saving for college, or retirement.

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