What You Always Wanted To Know About Money Market Funds

Money market funds developed the 1970s, has emerged as a high paying alternative to regular bank accounts. Over the years, they have become quite popular with investors and today the majority of assets are in the form of institutional funds. There are varied options related to money market funds such as those dealing primarily with municipal tax-exempt securities, corporate debt security, and government securities.

In the post, 2007-2008 economic slump scenario expansive amendments were made which involved interest-rate reduction, as well as reduction in liquidity and credit risk. These steps have increased the resiliency of money market funds and more regulatory changes are in order in the coming times. The aim of this is to increase the security for investors.

Money Market Vs CD

  • CDs offer guaranteed returns after different periods and regulated by FDIC. On the other hand, mutual fund companies or brokerage houses offer money market funds that do not guarantee fixed returns. Here the price depends upon the vagaries of the market.
  • Certificate of deposit tends to offer a higher interest rate to the investors compared to money market funds. Average rates of both, however, are presently same at 0.12%.
  • Money market funds are flexible options where you can deposit and take out money at will. There is no such option with CD accounts. Here, your money will remain locked for a definite period.
  • Those with a definite target in mind can go for CD accounts. If you want to simply, see your money grow without a specific purpose in sight then money market funds are the best option.

Money Market Vs Savings Account

  • Rates of interest related to money market funds are higher compared to savings accounts.
  • Savings accounts are FDIC insured while money market funds and not. Therefore, they come with higher risk.
  • With saving accounts, you need to pay up the withdrawal, dormancy, and depository fee. Money market funds on the other hand charge only open-ended fee and there are no withdrawal fee to consider.
  • Savings accounts do not allow you to withdraw money at whim. On the other hand, with money market funds, you can get ready cash anywhere, anytime. However, some concerns encourage you to keep the money in such funds for at least 90 days before use, and you may not get can interest before that time.
  • Returns with money market funds are higher compared to savings accounts. However, savings accounts offer fixed returns which money market does not guarantee.

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