Online Savings vs Money Market

[2canSAM]

Looking at saving up for a house and am a little confused, most what I have been reading says to use a MMA or CD. I do not need these funds to be liquid but going rate on bankrate.com for a 5 year cd is 3.66% and MMA is 2.77%. My online savings account is paying 4.0% so why is this not a better option? Are the rates on CD's guaranteed? or am I missing something else here.

 

[dullard]

The rates on CDs are guaranteed. The online savings rates have been plummetting. So while it may be 4% today, it may be 3% next month and 2% the month after that. Or, they could go up (unlikely). You just don't know. I would suspect the possibilty of the online rates going down is much higher than the possibility of them going up.

So, do you want 3.66% guaranteed, or do you want to gamble with 4%? Also, consider that if you want to buy the house in 4 years and not 5, that the CD won't let you do it without paying a massive early withdrawl penalty. So, the online accounts are more flexible than CDs.

 

[maddogchen]

if you are looking at 5 years, you might also want to look at short term bond funds.