What Are Money Market Funds?

What Are Money Market Funds?
Photo by Steven Depolo – CC BY 2.0

If you’ve heard of mutual funds then you may also know what money market funds are. This is a type of mutual fund that is enforced by law to reduce high risk securities. These have very low and safe risks when they are compared to the other mutual funds that are on the market. When it comes to the dividends they are a reflection of a shot term interest rate, although these finds are not insured federally but they are unlike a money market deposit account. Usually these pertain to government securities and they are an investment in them. They are also investments in the following:

  • Certificates of Deposit
  • Commercial Paper
  • High Liquid
  • Low Risk Securities

Money market funds keep the net value at an exact rate and it’s quite rare that an investor loses money in this type of a market – although, it is possible. If there are mutual fund shares and money market funds then usually the redemption has to be made within seven days that is unless there is a certain emergency situation in which there is a longer commission period for the protection of those who are holding the security. If you are considering making this type of an investment then you need to tend to the terms of agreement before you fork out any money or sign any papers.

How do the Accounts Work?

Let’s break this down and make it a little bit easier to understand. This type of an account is offered by not only banks but credit unions just like you would have access to a regular savings account. The only difference between that and money market funds is the idea that there is a higher interest rate and a balance requirement that is much higher. These requirements will often range anywhere from $1000-$2000. There is a limited amount of withdrawals that you can make on these accounts and there is a limited amount of checks that you can write every month- similar to a checking account.

The money that you have stored in this market is insured by the FDIC; that means that if somehow that union or bank goes out of business, your money is still going to be there because the Federal Insurance Incorporation is insuring your money for you. That is why it costs a little bit more to have one and that is why you have to have a minimum amount in the account at all times.

The FDIC is actually an independent agency separate from the federal government because of all of the bank failures that were taking place. Ever since the FDIC made this possible for people, not one person has lost their money.

Why should you get a Money Market Fund?

There are many reasons why you should get a money market fund and the first centers around the type of economy that we are currently residing in. Unfortunately, we are still heavily in debt as a country and we are in a recession, not a depression. Although, a recession is still unstable and knowing that our money is lying in a secure spot is, at times, the most that we can do to rest assured that we are going to be safe in case something happened to us and we had to support the catastrophe financially.

In a money market fund there is no way that you can lose money and there are more ways that you can keep track of how you’re spending the money or what you’re going to do with it. If you have this account then banks or credit unions are going to make more of an attempt to notify you of what is going on with your account and if it is below the minimum requirement.

Being that there is a limit on the withdrawals and the checks that are written, it’s more likely that you are going to save the money instead of spend it. There are many investors that keep their money in this account to save it for certain events or for significant times in their life. At times, they will even treat their account as their retirement funds because you are so limited in how much money you can take out of it.

If this is a new endeavor for you then it is one that is worth exploring. Make sure that you find the credit union or the bank that is fitting for you and make sure that you read all of the terms of agreement before you sign any papers or fork over any cash for your account. Ask around and see if there is anyone who also has one of these fund accounts and ask them what union or bank they use. Sometimes referrals are the best way to go!

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