Investing money in Stock market comes with high return on investments but it also comes with uncertainty and ups-downs of the market. So, number of people are willing to put their money in banks for little less return on money but more security. To cater to this section of population banks offer number of alternatives which include :-

Certificates Of Deposit (CD’s)

Certificates of deposit are very popular with the US public as a way of trying to squeeze a little more income from their savings.  In exchange for agreeing to lend their funds to the bank they will receive a guaranteed return over an agreed timescale.  For example if you were to lend $100,000 for 12 months at a rate of 6% then the transaction would be as follows :-

$100,000 passed to the bank in exchange for a certificate of deposit clarifying that at the end of the term you will receive $100,000 plus the agreed interest of $6,000 (so you will receive $106,000).

The CD market in the US is highly regulated in order to offers lenders the guarantee that they will receive their funds back as agreed.  If for some reason there was a problem with the borrower the funds in question are guaranteed by the Federal Deposit Insurance Corporation (FDIC) in the case of banks and the National Credit Union Administration (NCUA) in the case of Credit Unions. These guarantees are vital to the smooth running of the CD market where you are guaranteed a better rate of return than the one you would receive with a traditional bank account.

Money Market

The money market is a very similar animal to Certificates Of Deposit except that your money is physically held in an account – similar to a bank account – and invested in the money markets by your bank or credit union.  Unlike CDs where your money is tied up for a specific period, you may be able to take money from your money market bank account at any time (with certain restrictions). 

Depending upon how your account is set up you may need to give some notice before taking out the funds, which allows the bank / credit union to manage the funds on a more structured basis.  The institution who hold your account will have a number of similar accounts and all moneys available for investment on the money market will be bulked together to give individual savers access to higher rates than they would receive on their own. These accounts are also backed by FDIC and NCUA.

Savings accounts

Savings accounts are accounts offered by commercial banks, credit unions, and mutual savings banks that pay interest but can not (mostly) be used to write a checks. These accounts let customers set aside a portion of their liquid assets that could be used to make purchases while earning a interest. As above these accounts are also backed by FDIC and NCUA.

Conclusion

While there are many options in the savings market the bottom line is that the longer you are able to leave your money untouched then the higher rate of return you will receive.  By opening an account which requires 12 months notice you are giving your bank a “loan” of your money for 12 months before you ask for it back – for this extended time scale they will offer you a higher rate of interest than say a 1 month notice account.

It is vital that you take advice before depositing your money into longer term arrangements because you may not be able to get your hands on it if required at short notice.