Question

Norm has $15,000 to deposit. His daughter is a junior in high school and plans to go to college. Recommend the best way for Norm to store his money. Note that the interest rates are expressed on an annual basis.

a.
A four-year CD paying 4.8% interest, with a substantial penalty for early withdrawal
b.
An online savings account offering 2.3% interest
c.
A money market account paying 3.5% interest, renewable for three-month commitments
d.
A checking account with no monthly fees

Answer 1

A money market account paying 3.5% interest, renewable for three-month commitments.

Answer 2

The best way for Norm to store his money is through C. A money market account paying 3.5% interest, renewable for three-month commitments. Even though a four-year CD offers a higher interest at 4.8%, the fact that there is a substantial penalty for early withdrawal is a negative factor for Norm. His daughter needs the money after 2 years since she is already a junior in high school.