Money Market Funds
A money market fund is an investment fund that invests in short-term debt securities and other money market instruments. Money market funds are a type of mutual fund, and they are regulated by the Securities and Exchange Commission (SEC). There are three types of money market funds: Prime, Treasury, and Municipal.
What is a money market fund?
A money market fund is a type of mutual fund that is required by law to invest in only low-risk securities, such as Treasury bills, certificates of deposit, commercial paper and repurchase agreements. Money market funds are not insured by the Federal Deposit Insurance Corporation (FDIC).
The investment objective of a money market fund is to provide investors with a stable source of income while preserving the capital invested. Money market funds are managed so that the share price always remains $1.00 per share. This makes them attractive to investors who are looking for a place to park their cash for short periods of time.
Many money market funds offer check-writing privileges and some offer debit cards, which makes them convenient for use as a savings account replacement. Money market funds are typically used by individuals and businesses as a place to invest excess cash that is not needed in the short-term.
Types of money market funds
There are four basic types of money market funds: Treasury only, Government only, Prime, and Tax-exempt. Each type of fund invests in different types of securities and is subject to different regulations.
Treasury only funds invest exclusively in Treasury Bills, Notes, and Bonds. These funds are backed by the full faith and credit of the United States government and are considered to be very low risk. However, because these securities are backed by the government, they tend to offer lower returns than other types of money market funds.
Government only funds invest exclusively in government-related securities, such as agency bonds, Ginnie Mae pass-throughs, and Treasury notes. Like treasury only funds, government only funds are considered to be very low risk but also offer lower returns.
Prime money market funds invest in a variety of short-term debt instruments including commercial paper, Certificates of Deposit (CDs), corporate bonds, and other short-term debt instruments. Prime money market funds are subject to higher credit risk than treasury or government only funds but offer higher returns.
Tax-exempt money market funds invest in a variety of short-term debt instruments including municipal bonds and other tax-exempt securities. These funds may be subject to state and local taxes but are exempt from federal taxes. As with prime money market funds, tax-exempt money market fund investing entails credit risk but has the potential for higher returns.
Money Market Accounts
A money market account is a type of savings account that typically requires a higher minimum balance than a traditional savings account. Money market accounts may offer a higher interest rate than a traditional savings account and may offer check-writing privileges.
What is a money market account?
A money market account (MMA) is a type of deposit account that usually pays a higher interest rate than a savings account. The higher rate reflects the fact that funds deposited in an MMA may be used by the financial institution for investments, loans, and other activities. The Federal Reserve Board’s Regulation D helps to ensure that funds deposited in an MMA are available when customers need them.
An MMA is not a mutual fund or a security; it is simply a deposit account that offers owners some flexibility in how they use their money. For example, many people use MMAs as “transaction accounts” to hold cash that they will use to pay bills or make other types of payments. At the same time, the higher interest rate paid on an MMA can help people earn a return on their cash holdings.
The key features of an MMA are:
-Minimum balance requirements: To open an MMA, you may need to maintain a minimum balance (which could be $1,000 or more).
-Check-writing privileges: Most MMAs allow you to write checks against your account (up to six per month).
-Federal insurance: Your deposits in an MMA at a FDIC-insured bank or NCUA-insured credit union are insured up to $250,000 per depositor, per institution.
Types of money market accounts
A money market account is a type of savings account that generally earns higher interest than a traditional savings account. Many banks and credit unions offer money market accounts, and some offer additional perks like check-writing privileges or ATM access.
While money market accounts may offer better interest rates than savings accounts, there are also some key differences to be aware of. Most notably, money market accounts typically require a higher minimum balance than savings accounts. This can make them more difficult to access your funds if you need to make a withdrawal.
There are two primary types of money market accounts: those offered by banks and those offered by credit unions. Bank-offered money market accounts tend to have higher minimum balance requirements and may also charge monthly fees. Credit union-offered money market accounts typically have lower minimums and no monthly fees.
When choosing a money market account, be sure to compare the interest rate, minimum balance requirements, and fees charged by different institutions.
A savings account is the most basic type of account offered by most banks. Savings accounts typically offer relatively high interest rates and usually have no monthly fees. Although you may be limited to six withdrawals per month, savings accounts are a good option for those who want to earn interest on their deposits and do not need immediate access to their funds.
What is a savings account?
A savings account is a type of deposit account that offers investors a higher rate of interest than what is offered with a standard checking or savings account. Many banks offer these accounts with various features and benefits, so it’s important to compare options before opening an account. Some banks require a higher minimum balance to earn the higher interest rate, while others may offer tiered interest rates that increase as the account balance grows.
Types of savings accounts
When you’re looking for a savings account, you’ll find a lot of options. How do you know which one is right for you? It all comes down to two things: how much risk you’re comfortable with and how accessible you need your money to be.
Here are the most common types of savings accounts:
Standard Savings Accounts: A standard savings account is the most basic type of account. It offers a low-interest rate and easy access to your money. These accounts are good for people who want to save for short-term goals, like an emergency fund.
High-Yield Savings Accounts: A high-yield savings account offers a higher interest rate than a standard savings account. This means you’ll earn more money on your deposits. But, high-yield savings accounts often have stricter requirements, like minimum deposits or balance requirements. They also tend to have limited withdrawal options. These accounts are good for people who are comfortable with these requirements and are looking to earn more on their savings.
Certificates of Deposit (CDs): A CD is a type of account that requires you to keep your money deposited for a set period of time, typically six months to five years. In exchange for this commitment, CDs offer a higher interest rate than standard savings accounts. CDs are good for people who are comfortable leaving their money untouched for the length of the term and who don’t mind paying a penalty if they need to access their funds before the term is up.
Money Market Accounts: A money market account is another option that offers a higher interest rate than a standard savings account. Money market accounts also typically have stricter requirements, like minimum deposits or balance requirements, and limited withdrawal options. But, unlike CDs, money market accounts offer some flexibility in how you can use your funds. Money market accounts are good for people who want easy access to their money but still want to earn more than they would in a standard savings account.
See related articles on plain vanilla bond funds here, or this article regarding what are money market funds?.
Certificates of Deposit
A certificate of deposit, or CD, is a type of deposit account that’s FDIC insured and offers a fixed interest rate for a specific period of time. CDs are among the safest investments available, but they typically offer lower returns than other investments.
What is a certificate of deposit?
A certificate of deposit, or CD, is a type of savings account that has a fixed interest rate and fixed term of months or years. You can open a CD account at most banks, and usually there is no minimum deposit required.
You generally cannot withdraw money from a CD without paying a penalty, so it’s important to choose an account with a term that coincides with your savings goals. For example, if you know you will need the money in two years for a down payment on a house, you would select a two-year CD.
CDs typically offer higher interest rates than savings accounts because they require you to keep your money in the account for the entire term. The longer the term of the CD, the higher the interest rate will be.
Before investing in a CD, make sure to compare rates from different banks to make sure you’re getting the best deal.
Types of certificates of deposit
A certificate of deposit is a type of savings account that has a set interest rate and withdrawal date. The account is FDIC-insured, which means your money is backed by the full faith and credit of the United States government.
There are four main types of CDs:
-Standard CDs have a fixed interest rate for the duration of the term, typically ranging from three months to five years.
-Bump-up CDs allow you to increase your interest rate once during the term if rates go up.
-Liquid CDs have a shorter term than standard CDs, and they offer penalty-free withdrawals.
-No-penalty CDs allow you to withdraw your money early, but you will forfeit some interest.