Incredible Money Market Rates by Identifying Investment

Incredible Money Market Rates by Identifying Investment

The first and possible the most important consideration when choosing a money market is the interest rate. And the interest rate is directly related to what type of money market account you choose to invest in. Money market funds, whose rates of returns are directly related to the market, generally pay the best rates, but also have the most risk. Let's discuss further the difference between money market accounts and money market funds.

Money Market Accounts

What we traditionally think of as a money market is the money market account. These act almost exactly like a regular savings account. These accounts often pay better interest rates than a basic savings account. In return, the account holders have to agree to particular terms. For example, a minimum account balance must usually be maintained, which in some cases can be several thousands of dollars. Also, the number of transactions the holder can make per month a usually limited to a few withdrawals or transfers. The most important factor in this type of money market is that it is insured by the FDIC just like a regular bank account.

Money Market Mutual Funds

A money market mutual fund is very similar to a money market account in that it requires a minimum initial investment, a minimum account balance and the number of transactions per month are limited. The biggest difference is in how the account determines the interest. In a money market mutual fund, the interest is determined based off how well the market is doing. Each individual share remains constant at $1.00, so as the value grows, you are compensated in the form of additional shares. These shares can later be cashed in for liquid assets if the holder wishes.

The second type of money market investment is called a money market mutual fund. Money market mutual funds invest in short-term, low-risk debt securities, such as CDs, Treasury bills, and municipal bonds. Also, since these accounts are based off the market, the FDIC does not fully insure the accounts.

Both of these types of accounts are relatively safe investments and make a good addition to a well-rounded portfolio. It's not a bad idea to have one of each to truly diversify your portfolio.

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