Money Market Funds
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Investment Companies > Money Market Funds • Hedge Funds • REITs
A money market fund — not to be confused with its cousin,
the money market account — is a collection of short-term
debt investments held by a mutual fund. Also called a money market
mutual fund or money fund, it is sometimes referred to by the acronyms
MMF and MMMF. Money market funds are equity funds; they're not
insured, and they are subject to market losses.
In contrast, a money market account, known by its acronym MMA or more formally as a money market deposit account, is an interest-earning savings account with limited transaction privileges. As a savings account, the MMA is insured by the FDIC (whereas the MMF is not insured, and is therefore, subject to market losses).
The benefit of money market funds or money market accounts is that they are highly liquid (meaning that money can be withdrawn easily and quickly, without penalty), yet they offer higher rates of return than other liquid investments such as traditional savings accounts. For example, according to Bankrate.com, the average rate on interest-bearing checking accounts in July, 2006 was about 1.22%, compared to 3.34% on money market accounts and around 5% on money market funds.
If you're thinking about opening a money market account or money market fund, ask these questions first:
- What is the minimum deposit required to open the account?
- What is the minimum balance? What happens if my balance falls below the minimum?
- What is the interest (yield) rate? How often is that rate adjusted?
- Do you offer higher yields for larger balances?
- Is there a monthly fee?
- What are my transaction privileges (how often can I deposit and withdraw money)?
- Does the account come with check-writing privileges? How about Internet transactions?
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