How does money market account help in handling short term cash requirements intelligently?

An integral part of financial markets, money market is a term used to describe the borrowing and lending of assets over a short-term. The original maturities involved in it are typically a year or less in duration. Some essential components that enable money markets trading are commercial paper, CDs, treasury bills, short-term mortgages, federal funds, securities that are asset-dependent and bankers’ acceptances. Offering important liquidity funding for systems that include global finances, money markets are much in contrast to capital markets that have funding over a longer period.

Also known as a money market mutual fund, money market funds are of the open ended type with investments that have short term debt securities. Generally money market funds are intended at reducing the exposure of losses that may be incurred because of market fluctuations, credit and liquidity risks. Under the Investment Company Act of 1940 in the USA, money market funds are required to purchase debt that has the highest rate while maturing in a period of less than 13 months. Typically they are a step away from other financial institutions as they look at upholding a $1 stable value per share.

In comparison to money market funds, CDs enable an investor to ascertain the anticipated earnings early on in the investment. Being FDIC insured for an amount of up to $100,000, allowing individuals in the older age bracket to preserve valuable capital also gives CDs an upper hand. On the flipside, investors choosing longer maturity with CDs and consequently a rate of interest that is higher may not gain access to funds conveniently. The upside of having money market is that it makes cash deposits hassle free while also keeping it open to other investment options. The biggest drawback of money markets though is the restriction placed by institutions on the amount of checks that can be drained for an account. They are however far more beneficial to individuals who require easy access to their capital.

While a savings account is a great way to keep funds safe and secure, those looking at earning something extra can choose money market funds. Additionally money markets are also safe in their own way. Mostly only securities that are financially stable and investments that are attributed by maturities fewer than 120 days are invested. With some money market funds offering much lower yield when pitted against the average market, the value is still higher than that offered by a savings account. In comparison to a savings account, investors must however check for various service fees which are accompanied with money markets.