CDs and Money Market Funds

CDs. Certificates of deposit are a popular tool for investing the cash surpluses

of a business. CDs are time deposits with banks and other financial institutions. The interest earned on CDs depends on the amount of time you're willing to part with your cash surplus and on the amount you have to invest. The longer you are willing to part with your cash surplus, and the more you have to invest, the higher the interest rate you'll receive. Most CDs impose a penalty if the certificate is cashed in before it reaches full maturity. Your bank should post the rates it offers for varying terms and deposit amounts.

Money market funds. Money market funds are pooled funds investing in various money market investments including treasury bills and notes, CDs, and commercial paper

. Money market funds minimize your risk by diversifying your investments and offer a favorable yield. Money market funds are very liquid. Funds can be withdrawn immediately or on one-day notice. Money market fund accounts are available at banks, but they can also be established through stockbrokers or directly with mutual fund companies.