Final answer:
Investment products can be ranked by liquidity; a savings account is the most liquid, followed by a money market account, stocks, and finally a CD (Certificate of Deposit), which is the least liquid due to early withdrawal penalties.
Step-by-step explanation:
When it comes to bank investment products, liquidity refers to how quickly an investment can be converted into cash without a significant loss of value. Placing each product on a liquidity ladder helps us understand how easily each can be accessed as cash. Here is the correct order from most liquid to least liquid:
- Savings Account: Offers easy access to funds, though interest rates are relatively low.
- Money Market Account: Typically offers higher interest rates than savings accounts, with relatively easy access to funds but limited withdrawal transactions.
- Stocks: While they can be sold during market hours, their value can fluctuate significantly, meaning liquidity is high but comes with the risk of losing value.
- Certificate of Deposit (CD): These are time-bound investments with fixed terms and typically offer higher interest rates. However, they come with penalties for early withdrawal, making them the least liquid option on this list.