A Brief Comparison of Money Market Funds and Money Market
In 2008, the Federal Reserve created a particular funding mechanism that is supposed to provide $540 billion to finance the money market mutual funds industry. The program is another endeavor of the Federal Reserve in order to increase the liquidity and provide more cash to market investors. Financial institution began to issue US dollar denominated acceptable assets like commercial papers and certificates of deposits. This program was further authorized under the Federal Reserve Act Section 13.
In the advent of creating programs to enhance the money market industry, it is but advisable for consumers to learn the actual difference between money market funds and money market accounts. This is so to avoid confusions that may arise in any financial transactions done within this field. In general, money market accounts are bank options to what is called the market mutual funds.
Most people get confused about the two concepts that they would rather not engage into the money market. But once you are able to differentiate the two, you will definitely begin your journey to earning from your invested money. Money market accounts are referred to as the plain-vanilla option. They are ordinarily found in the banks where you can be paid a considerable annual percentage yield or APY as you put your money for safekeeping.
On the other hand, money market funds are created with more complexities because you are entitled to many options and you will certainly earn a slightly higher interest yield. Money market funds vary in forms and those which are under it may include the following: money market funds backed by the US Treasury, money market funds backed by US government and agency, the money market funds owned by the municipality, local municipal funds, and the socially responsible money market funds.
The above-mentioned options are enlisted as one consumer should decide on the instrument where the funds will be used. Many people find it comfortable to invest in the money market funds which are backed up by the US treasury while others are opting for the municipal money market funds which are usually tax-free in income.
The very reason why people get their money into the banks is the fact that safety is unrivaled there. There is a great battle between safety and high yield when it comes to deciding between money market accounts and money market funds. Money market accounts are safer because they are FDIC insured. This means that once the bank experiences financial disasters and failed in the end, the money you invested there is entitled to an insurance which could be up to $100, 000.
The insurance is what makes the money market account become entitled to lower interest rates. This explains why funds are yielding higher earnings. When the risk becomes higher because it is not insured, the interest increases as a compensation scheme.
Now, everything would definitely boil down to the question of which to choose between money market account and money market fund. The answer will definitely be dependent on what you really need. If you don’t actually need to earn much because all you want is for your money to be safe, then you should settle with money market accounts. On the other hand, if you are willing to take the risk of losing because there is a promise of higher yield, then money market funds is for you.
Investing your money either way would surely earn you great financial returns. However, you should evaluate yourself in order to make the right decisions. Prioritize your concerns and you will definitely fall into the right investment mode without you regretting in the end.
