Mastering The Money Market Fund

There isn't much to say about a money market fund. It is similar to a mutual fund.

In fact, it IS a type of mutual fund; it's the safest type. Money market mutual funds have the same benefits of mutual funds, but with lower risks. The reason for the low risk is because they collect short-term debt investments. These investments are debt securities that mature in 13 months or less. They are also called cash investments because of the short maturities.

The problem with these funds is that if you don't have much to invest, you can hurt your returns. The share-value you own of these mutual funds are equal to $1. The interest rate is what changes and gives you earnings, not the share price. These funds typically have annual fees which make an impact on your returns.

I typically would suggest investing in certificates of deposit if you don't have a large amount to invest. Some money market funds are tax-free and they sometimes allow you to write checks from them. However these are just average investment vehicles; there are better options out there!

Money Market Accounts

The advantages of having money market accounts are:

The ability to write checks

Higher interest rates

And, MMAs are FDIC-insured; like savings accounts.

If you are not a big risk taker (click here to find out what type of risk taker you are) , you may want to consider opening a money market account. The returns may not be extravagant, but your money will be safe. There are transaction limitations. You cannot write many checks; they limit you to about 3 a month. The same goes for account transfers.