Liquidity is one of the key differences between savings and investments.
Savings are liquid. That means you can withdraw cash with little or no loss of value any time you need the money. If your account is worth $1,500, that's the amount you can take out. With bank CDs, you can usually retrieve your full principal, although you may lose some interest if you withdraw before the term ends.
But investing doesn't mean tying up your money. In fact, you have almost as much liquidity, or ability to turn your investments into cash, with most stocks, bonds, and mutual funds as you do with a bank or mutual fund money market account. That's because if you need money, you can always sell these investments through your brokerage firm. And in the case of mutual funds, you can often sell them back to the issuer directly.
The difference is that the investments may have decreased in value, either from a previous price or since you bought them. If you sell when the price is down, you may lose some principal.
Brokered CDs, which are issued by banks but are sold through brokers, may be less liquid than bank CDs. For instance, you may not be able to withdraw your funds even if you're willing to pay a penalty. However, some brokers will purchase your CD and sell it to another client at market price.
That means you may receive less — or more — than you paid for it.
