The easiest way for you to gain access to the money market is with a money market
mutual funds, or sometimes through money market bank account. These accounts
and funds pool together the assets of thousands of investors in order to buy the
money market securities on their behalf. However, some money market instruments,
like treasury bills, may be purchased directly. Failing that, they can be
acquired through other large financial institutions with direct access to these
markets.
Money market mutual funds are a type of
mutual fund that invests in short-term (less than a year) debt securities of
agencies of the U.S. Government, banks and corporations and U.S. Treasury Bills.
They are fixed at $1 per share and only the yield fluctuates. If you don't know
what a mutual fund is go to our mutual fund section.
Banks prefer that you never hear about the money market funds available to you
because these funds offer advantages that savings accounts, checking accounts
and CD's can't beat:
High Liquidity - Money market funds are very liquid, meaning you can take
money out of them on short notice. There is no penalty for taking money out of
your money market fund, unlike Certificates of Deposit (CD's) that impose large
fees for withdrawing your money. You can also write checks from your money
market account (typically three a month).
Low Risk - Money market funds are not FDIC insured, but they are still
very secure because they are holding very safe investments like t-bills.
Government debt securities are considered very safe because the government has
the ability to raise taxes to meet its obligations. It is virtually impossible
to lose your principle in money market funds. To top it off, most mutual fund
companies carry some sort of insurance to cover your assets.
Competitive Yields - Your checking and savings accounts will have a tough
time beating the yield of a money market fund. Money market funds return an
average of 4 to 6 percent a year, which rivals the return of CD's. The interest
is calculated daily, but only paid out at the end of the month unless you sell
the fund, then it is paid at that time.
Widely Used - Trillions of dollars of investors' money is in money market
funds. If you sell a stock or a mutual fund, your broker or fund company will
typically move your proceeds into a money market account so you can collect
interest. Also, when you open an account with most brokerage firms or fund
companies, your money is typically put into a money market account until you are
ready to purchase bonds or equities.
Money market funds are clearly a smart place to hold your money. If you are
between investments, saving for a house, saving for a vehicle purchase, or just
looking for a safe place to put money, a money market fund is a great
alternative to holding large amounts of money at the bank.
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What is
a money market account?
These are bank savings
accounts normally paying interest at rates comparable to those
offered by money market mutual funds. One appeal of money market
accounts is that they have the added safety of Federal Deposit
Insurance Corporation (FDIC) protection, up to a limit of $100,000
per depositor.
One drawback may be that
some banks reduce the interest they pay or impose fees if your
balance falls below a specific amount. Money market accounts offer
check-writing privileges, although there are usually limits on the
number of withdrawals you can make each month. |
