Money market investing is depositing money with a bank or financial institution that keeps its cash in financial obligations that span the short-term. This is done to provide low-risk money market investing that yields modest returns. Money market investing is not for the individual who wants to get rich quick. The short-term debt strategies held in money market investments are usually made in highly rated companies and government agencies.
Money market investing yields an average of 0.05% to 1.05% per year for accounts with minimum opening balances. You can, theoretically, lose money in a money market investment, but it is highly unlikely. The FDIC does not insure money market investments. You can lose all of your investment if the company holding it goes bankrupt.
Money market investing is beneficial because of its low risk. Many investors hold their money in a money market account when they are not investing in a more aggressive strategy. This gives the money a place to rest where it can still earn moderate interest, at low risk. Because of this procedure, money market investing represents one of the most widely held securities in finance.
Investors often deposit profits from bonds, stocks, and mutual funds into money market accounts. Dividend and interest proceeds from more aggressive investments are generally deposited directly into money market accounts.
Initially, you must deposit higher sums of money into money market investments than into bank accounts. Money market investing requires deposits of at least $100 to $5000 at the onset, though some have no minimums. The per-share price of money market investments is usually one dollar. Proceeds from money market investments are paid in shares. Check writing services are provided as a part of most money market investing.
Money market investing is not one-size-fits-all. Money market investment firms put their money in dissimilar securities. Because of this, they pay different interest rates. You can deposit your money into a money market savings account that will yield a low-interest rate, but is somewhat higher in interest than a standard bank account, or you can do your money market investing in a mutual fund.
A mutual fund pools the resources of many money market investors. The mutual fund’s manager buys money market securities for the mutual fund.
Money market investing is generally open-ended, which means that the investors can deposit or withdraw monies at any time without risking penalties. Most money market accounts and funds require that a minimum balance be maintained.
Interest rates from money market accounts are usually based on risk. The money market accounts and mutual funds paying the highest interest are, thereby, likely to run the highest financial risk. This is where the money market investor needs to weigh the security of their money against the promise of return.
Different money market accounts make varying demands on the investor. Some will maintain a higher minimum balance, while others will limit the number of allowable withdrawals, some might do both.
It is important to be aware of the restrictions and obligations placed upon your money market investing before you decide where and how to make your investments.
This concludes the brief series on where to place your cash and explains the use of money market accounts we did not discuss earlier this week. To get the most current interest rates on money market accounts, savings accounts, and certificates of deposits, visit https://www.bankrate.com.
If you need assistance as to where to place your cash or have any other personal finance questions reach out to me directly or another fee-only Registered Financial Consultant. To join my email newsletter, fill out the form below.
