ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Higher the liquidity, lower will be the yield. For example, savings and current accounts are highly liquid. At the same time, the certificate of deposits is less liquid. These attract certain charges and penalties for early withdrawals.

Detailed explanation-2: -How is a savings account more liquid than a CD? why is liquidity important? A savings account is more liquid because you can withdrawal your money without penalty. A CD has an early withdrawal penilty.

Detailed explanation-3: -With a CD, you won’t be able to withdraw the funds before the account’s maturity date without paying a penalty. With a savings account, you have access to the money pretty much whenever you want, though you’ll generally be limited to six withdrawals per month.

Detailed explanation-4: -In general, a money market account is more liquid than a CD. In fact, many CDs have early withdrawal penalties attached to them, while money markets do not. That said, a CD will often pay a higher interest rate, because of its illiquidity.

Detailed explanation-5: -a savings account is access to your money. Both types of accounts typically discourage withdrawals, but money in CD accounts is essentially locked. Early withdrawals from CD accounts are likely to come with a penalty.