One of the ways that you can get a little more of a yield on your cash is to make use of money market products. However, it is important to understand the difference between the different money market options you have. The two main options that many people have to choose from when it comes to money market are:
- Money Market Bank Account
- Money Market Mutual Fund
Both types of money market products rely on the markets related to cash. However, there are some key differences that you should be aware of before putting your money in either of these products.
Money Market Bank Account
First of all, a money market bank account is a lot like regular bank accounts that you might have. However, you often earn a higher yield on a money market account than you would on a traditional savings account. Also, you often have the option of writing checks from a money market account (although you are often limited to the number you can write each month). You may also need to retain a minimum balance of more than $1,000, and limit your withdrawals from the account.
However, the money is protected by the FDIC or NCUA, so if something happens to your financial institution, you can get your money back, up to $250,000. You aren’t going to get a really high return on your cash, but you will often do better than a regular savings account.
Money Market Fund
A money market fund is an interesting investment. A lot of people think of money market funds as safe, since they invest mainly in like-cash securities. Most of these are short-term debt securities like money funds, commercial paper and short-term bonds. While it is possible for money market funds to lose (it happened after the financial crisis in a couple of cases), it is quite rare.
But is important to remember that money market funds are not insured by the FDIC or NCUA. Even if you invest in them through your bank, you should realize that they are investments and not deposit accounts, so the insurance doesn’t apply. Make sure you understand the distinction before you put your money in a money market fund.
Both of these money market products can be a reasonably safe way to protect your capital, helping your money keep pace with inflation in some cases. Just make sure you understand what you are getting.