Money Market Accounts: Consider Money Market Funds For A Safe Investment Alternative
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Money market accounts are considered a safe means of preserving principal while earning a small return. A money market fund is usually operated by a financial institution such as a bank, investment or insurance company. The fund purchases short term notes and bonds. The fund may purchase government obligations, such as Treasuries and notes from government agencies such as Fannie Mae and Freddie Mac. Some money market funds purchase highly rated short term corporate debt.
Historically money market funds earn three to five percent a year. The past couple of years interest rates have been extremely low, and that is reflected in the low rate of return for the funds recently. A significant advantage to an investor of placing cash in a money market fund is that the money can be withdrawn at any time without penalty – and as often as the depositor needs the money.
There are several benefits of investing your money in money market funds. A major benefit is their perceived safety. There is minimal risk of loss of principal. It is exceedingly rare that money market funds experience liquidity problems. Because of the perception of safety, financial institutions do not want to risk losing the confidence of their customers. They have stepped up and maintained the funds when there have been problems so there is no loss to shareholders. The funds are not, however, FDIC insured or guaranteed. There is always a risk of loss of principal, remote as the possibility might be.
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on August 3, 2011 at 11:30 pm