A money market, different from a money market account, is the trade in short term, low risk securities. These securities, such as certificates of deposits (CD’s) and U.S. Treasury notes. A money market fund is a mutual fund that trades it’s shares to purchase these securities. The income is then distributed to shareholders in the form of additional shares. It’s a fairly safe, conservative way to invest. Finding the top money market funds might be difficult, however.
Most investors are looking for quick ways to make big cash. Yet nowadays, even the top rated money market funds may not have a interest rate of 2%, or if you’re lucky, perhaps 2.5%. That might feel pretty depressing. Especially when some online savings accounts offer a 3.5% interest rate. Why use them at all?
One reason is that all of these funds, both low rated and top money market mutual funds, can be found in taxable and non taxable forms. While a savings account might offer a higher interest rate, the taxes you’ll pay might not bring you out any better at the end. A non taxable money market fund at a lower rate ultimately can sometimes bring in more cash.
Another thing to consider is the safety level. Since a money market fund is a security, if you buy through a firm covered by the Securities Investor Protection Corporation (SIPC), you’re covered even more than what the FDIC insures on a money market account. Even if your brokerage busts, you can be covered up to $500,000 in securities and up to $100,000 in cash. The FDIC insures only up to $100,000. Or perhaps $250,000 for retirement funds.
Some funds are bought through a mutual fund company. Others through retirement investment programs. When searching for the top money market fund, remember that depending on the program, there will be different qualifications in order to invest. Other funds allow deposits from individual investors. They are basically open to anyone. Also remember that funds come with investment management fees. Figure the fees into your calculation before deciding you’ve found the highest rate fund.
Most investors are looking for quick ways to make big cash. Yet nowadays, even the top rated money market funds may not have a interest rate of 2%, or if you’re lucky, perhaps 2.5%. That might feel pretty depressing. Especially when some online savings accounts offer a 3.5% interest rate. Why use them at all?
One reason is that all of these funds, both low rated and top money market mutual funds, can be found in taxable and non taxable forms. While a savings account might offer a higher interest rate, the taxes you’ll pay might not bring you out any better at the end. A non taxable money market fund at a lower rate ultimately can sometimes bring in more cash.
Another thing to consider is the safety level. Since a money market fund is a security, if you buy through a firm covered by the Securities Investor Protection Corporation (SIPC), you’re covered even more than what the FDIC insures on a money market account. Even if your brokerage busts, you can be covered up to $500,000 in securities and up to $100,000 in cash. The FDIC insures only up to $100,000. Or perhaps $250,000 for retirement funds.
Some funds are bought through a mutual fund company. Others through retirement investment programs. When searching for the top money market fund, remember that depending on the program, there will be different qualifications in order to invest. Other funds allow deposits from individual investors. They are basically open to anyone. Also remember that funds come with investment management fees. Figure the fees into your calculation before deciding you’ve found the highest rate fund.
Very nice blog... This is very useful information about money market fund or mutual fund. I want to know how to invest in mutual funds. Thanks for sharing.
ReplyDeleteHaim Toledano