Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, June 25, 1990 TAG: 9006230015
SECTION: BUSINESS PAGE: B5 EDITION: METRO
SOURCE: Mag Poff
DATELINE: LENGTH: Medium
A: Both certificates of deposit and money market deposit accounts are savings vehicles offered by banks and thrifts. Both are federally insured up to a limit of $100,000.
The certificates usually earn more interest. That's because the money must be deposited for a specific period of time ranging from three months to 10 years. There's a penalty (usually three months' interest) for early withdrawal.
Many banks market certificates with limited withdrawal privileges, but the interest rate may be a trifle lower.
You can buy certificates at most banks for as little as $500 or even $100. You must have $1,000 to open a money market deposit account, but most banks set a minimum of $2,500. Interest rates are usually tiered, with higher earnings for larger balances.
The money is completely liquid. You can write three checks a month and arrange for three automatic transfers such as for mortgage payments. You can also go to the bank at any time to withdraw any or all of your funds.
Both of these products have a role to play for the income (as opposed to growth) share of your investment portfolio.
You can buy certificates with money you don't need right away, setting your own date for maturity.
Because you can get your money at any time, a money market deposit account is an excellent place to keep emergency funds. The limited checking makes them handy for paying taxes or college tuition bills.
The money market deposit accounts sold by banks and thrifts are not to be confused with money market mutual funds marketed by brokers and investment companies. The latter are shares in mutual funds invested in various types of money market securities such as Treasury bills.i
First, diversify
Q: What would be the best way to invest $10,000 to $15,000? Currently the money is in a CD earning 8.15 percent for six months. What route should we go when the CD matures? Another CD? Mutual funds - of which I know nothing?
A: You have enough money to diversify your portfolio.
You don't say how old you are. If you are in your 20s or 30s, up to half of your savings could be in growth mutual funds. As you get older, the share would drop back to 20 percent.
The rest of your money should be in income investments such as certificates of deposit.
You can learn about mutual funds by reading investment magazines such as Money and Forbes. They will guide you in finding the best fund to fit your goals. Stock mutual funds historically have achieved the best returns over the long haul.i
Correction
Last week's Money Matters column said that 403(b) retirement plans, like the more popular 401(k) programs, are eligible for five or 10 year income averaging.
Andrew Hudick, a fee-only financial planner with Elliott & Associates, said 403(b) plans used by employees of non-profit organizations are not eligible for this tax option. He said the two plans are alike in the manner of making contributions during working years.
When it comes to distributions, however, 403(b) retirement plans are more like Individual Retirement Accounts. Distributions are taxed as ordinary income without the benefit of five or 10 year averaging.
Keogh plans for self-employed persons can be rolled over into so-called conduit IRAs, Hudick said. These funds should not be mingled with money in any other IRA. Keogh money rolled into a conduit IRA remains eligible for later five or 10 year tax averaging.
by CNB