About the Author
Theodore "Ted" Jenkins
I am Ted. I write, therefore I am.
In recent years, the money market is attracting a substantial percentage of population, for investing their money to get maximum returns. Known as the safest existing money market, it may also be termed as cash investments for its short turnaround. A large number of financial institutions turn to the money market to get most of their money in a short duration.
What Are Money Market Accounts?
Most of us are aware of the working of any interest bearing account in a bank. Just as interest is paid on the money deposited in such an account, money market account takes the money deposited. This deposited sum taken is then invested in various bonds and short-term debts. The interest paid on such investments in short term debts are generally higher than that paid on any interest bearing bank account. Due to the shorter period of time for which the investment is made, there is a little chance of bearing a loss since the prices of the debts don’t vary much. Although the debt prices remain generally stable, there is no guarantee against loss.
How The Money Market Rates Are Determined?
Since the money market account invests in various different bonds and short-term debts, the interest rate may vary according to the investments. The goal is to maintain a share price close to the basic currency that the account is administered in. The various investments, which have been made, give rise to the combining of their respective rate of interests. It is this combined investment rates which gives the total investment rate of the account.
How To Choose The Right Money Market Account?
Before diving into the money market account, it is recommended that considerable research be done and the past performance be judged. You generally pay a fee called ‘expense ratio’ for someone managing your investments. It’s preferable to search for a money market account, which charges a low expense ratio. One should make sure that the price per share is maintained. The interest rate offered to you must also be higher than what you get on any interest bearing bank account.
There are both taxable and tax free money market funds. Whereas the taxable gives a higher rate of interest, it’s advisable to evaluate using a taxation formula, which kind of fund will give you maximum returns.
Some money market funds also allow transactions up to a certain limit. They may even impose a fee if the amount of withdrawals has surpassed the minimum account limit.
Some administrators also hold the funds non-invested, until you are ready for the investment.
Only after deciding upon the pros and cons of the money market, the investment should be made.
Published by Theodore "Ted" Jenkins on May 30, 2006 11:43 AM
