Understanding the Money Market Deposit Account

A general view of the money market is what you need in order for you to understand how this kind of savings account actually works for those who want to earn more out of their hard earned cash. Just like the usual scenario in the stocks market where people buy and sell stocks, money market serves as an avenue where people could conduct their own buying and selling of money. But in this case, the selling and the buying would mean nothing else but borrowing and loaning money respectively.

Money market funds are being considered as very popular money management tool. It has actually no big difference with your ordinary deposit accounts in the bank because the banks also take your money and put them in another investment method. Dividends are used in order to compensate the act of using your money for other financial transaction with their clients. Dividends are paid monthly but some banks are bound to offer alternative payments modes and schedules.

When you decided to put your money in the money market, banks would use them as short-term instruments which mature in a year or thirteen months for the maximum duration or length. Money doesn’t have to stay in long term investments to avoid acquiring higher risks. According to the Securities and Exchange Commission, funds in the money market should only stay there in less than ninety days. These means that the longer you loan your money to someone else, the bigger the chance that it will not be returned to you.

In the view of understanding further what this kind of market is all about, there are three important risks which should be emphasized. Consumers like you should know first that money market is a security. There are fund managers who take the responsibility of keeping the share price at a constant rate of one dollar per share. There is no assurance, however, that the fund managers will be able to keep that rate all the time. There are situations when the rate could go lower that that and when you might e able to lose some of your funds.

The US Securities and Exchange Commission acknowledge the possibility of money market investors to lose their principal once the rate is not maintained. However, because of this possibility that return of cash is expected from an FDIC insured savings account. From this, you can infer that the funds in the money market are not in any way insured by the FDIC.

The second thing you need to know is that money market funds are variable. The monthly earning is indefinite each month because the rates could either go up or down. This means that if rates go up, you can earn yourself much from the investment but once it goes down, then you will need more cash to sustain your usual needs.

Finally, any investor in the money markets should be aware that the market itself is affected by inflation. This is because funds in the money market are much safer than any other investments including the stocks, then you should prepare yourself from the instance of inflation eating up.

Investing in the money market makes a decent return for investors which are relatively safe because they are liquid as you take advantage of the high interest rates when you invest. Its liquidity will allow you to take your money back out of the investments when interest rates are low. Investors in the money market also enjoy the chance to earn dividends and at the same time to be given access to the cash.

The money market is indeed another avenue for you to allow your money to grow and be able to make the most out of it.