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Ask the Expert: The Best Bank Rates with Liquidity

July 13, 2010

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Q: I am 60 years old, and I have a small pension of $18,000. I need to keep it liquid, but I am not sure if I should put it in a CD or a money market account to earn some interest. The rates are horrible for IRA money market accounts.

A: As is generally the case with financial matters, answering your question starts with planning ahead. You mention needing to keep the money liquid, but you need to think through specifically why you are keeping it liquid -- what do you need the money for, and when do you need it? Since your question suggests this money may be in a pension or an IRA, be sure to factor any relevant tax considerations into your planning.

Once you have your plan for using the money sorted out, it should resemble a sort of schedule. What you might find is that while you need some liquidity in the near term, other parts of the money might not be needed for months or even years. This would give you the option of putting some of the money into longer term CDs to earn higher yields.

As a general rule right now, you'll find money market rates comparable to CD rates of three months or less. So, for money you'll need within the next three months, you may want to lean toward money market accounts for the extra liquidity with comparable yields. For anything longer than that, you should at least consider CDs because they might have higher rates. Be sure to shop on MoneyRates.com to find the best rates that fit your needs.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the bottom-left.

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