Before we get to the meat of the article, we need to have a brief refresher course on what a Money Market Fund is.
A Money Market fund is similar to a savings account. You can usually find them at banks, credit unions, brokerage firms and other financial institutions. Although people use them like a savings account, they are actually a security and more closely resemble a mutual fund. The biggest - very important - difference is that they are NOT FDIC insured. Many people mistakenly believe that they are insured. Because they are actually a securities product, if the market for them falls, you could lose a portion of your savings. Financial markets have worked diligently for years to keep them at 1.00 per share. That means that if you put in 1.00, you will get 1.00 back when you take the money out. But they do occasionally go below that threshold and that may cause you problems.
- Money market funds are an investment. Typically they invest in short term government securities as well as other short term investments. The average length of investments for a money market fund has to be less than 90 days long. Because of this time constraint, the risk for money market funds is usually pretty low. But that low risk may come with a fairly low rate of return, or interest rate. The interest rate for a money market fund is usually slightly better than a regular savings account rate, but it won't be a whole lot better.
- Since many banks and credit unions offer money market funds, you can start your search by checking with your local branch office. Don't think that they are insured just because you are using a money market fund at a bank. However, a lack of FDIC insurance doesn't necessarily make them a bad investment.
- If you have an investment account, either with a brokerage account or with a mutual fund company, you should have access to a money market account there also. You can check the website for your firm, or ask your broker or fund representative. You should be able to find the information pretty easily.
- Maybe the most information can be found by searching the Internet. Look at a website like Bankaholic. Here you can find various institutions that offer money market funds and the investment requirements that go with each account. You can also find fee information to go with your rate information. I'm sure there are other websites out there that can offer similar information. This is only one example.
Searching the internet has the advantage of giving you a lot of information fairly quickly. Be aware that a lot of your options here may be internet-only banks. Sometimes you can get a better rate because the bank isn't paying for an actual storefront. However, some people are more comfortable going into an actual branch location. You will need to use the information you find to help you make a decision that makes sense for you and that you are comfortable with.