Park a windfall in money-market account or a CD

Moneyline

Dollars & Sense

September 12, 1999|By Arthur M. Louis | Arthur M. Louis,SAN FRANCISCO CHRONICLE

I soon will receive a lump-sum inheritance. After paying off the mortgage, I will have approximately $100,000 to invest. I would like to park that money safely for up to three months, by which time I hope to find an investment counselor. Should I choose a CD or a money-market account or something else?

Either a CD or money-market bank account -- fully covered by federal deposit insurance -- will do for a short period of time.

Such accounts currently are paying interest of about 5 percent annually, which translates to $1,250 on a $100,000 deposit if you maintain your account for three months. Shop around for the best rate.

Chances are that a CD will pay more interest than a money-market account at the same institution because with a CD, you won't have the freedom to withdraw your funds without penalty until the three months are up. There are no such penalties with a money-market account.

The most interesting part of your question is your throwaway line about "paying off the mortgage." You ought to consult your investment counselor first.

If your mortgage interest rate is lower than the estimated return on stocks, mutual funds or whatever other investments your counselor recommends, it might be best to keep the mortgage and invest more than $100,000.

Also, don't forget that paying off the mortgage would deprive you of a significant tax deduction -- the amount of interest included in your monthly mortgage payments.

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