A money market is a type of financial account used by participants to borrow and lend for a short term. The maturities of the money market can range from one night to just under a year.
The money market uses high-liquidity financial instruments which may include negotiable certificates of deposit, U.S. Treasury bills, commercial paper, municipal notes, repurpose agreements, bankers’ acceptances, federal funds, Eurodollar deposits and more. Transactions that take place through money markets are wholesale. This means that they take place between financial institutions rather than people. The most common institutions that take engage in the money market include banks and investors.
Money Market Funds
A money market fund is a type of investment that is set to earn interest for the shareholders. The purpose of a money market fund is to give investors a safe place to invest cash-equivalent assets. A money market fund is a type of mutual fund that is low risk and highly liquid. It does not have the highest return of investment choices, but because it low risk, making them a good choice for many. It should maintain a net asset value of $1 per share. A portfolio in the money market is made up of short-term securities (less than one year). Securities represent high-quality monetary instruments. The money market fund shares can be purchased by investors through a variety of different financial institutions including banks and brokerage firms. Money market funds offer no load fees and may provide investors with tax-advantaged gains.
Money Market Instruments
Money market instruments allow for businesses, banks and government a way to fund their short-term financing requirements. Money market instruments include:
- Treasury bills
- Commercial paper
- Bankers’ acceptances
- Bills of exchange
- Repurchase agreements
- Federal funds
- Short-lived mortgage securities
- Short-lived asset-backed securities
- Negotiable certificates of deposit
- Federal funds
Benefits of Money Market Accounts
There are many benefits you can experience by opening a money market account. The main account that most people experience is saving money. You can take advantage of competitive interest rates and experience the easy and convenience of online banking. A few of the main benefits of money market accounts include:
- Money market accounts give you easy access to funds, rather than typing it up.
- The Federal Deposit Insurance Corporation protects your money the same way it would a regular savings account and the interest that is accrued up to the maximum amount allowed by law.
- Some money market accounts allow you to write checks and access funds using a debit card.
- Money market accounts generally offer high interest rates that are not determined by the deposit amount.
A money market account may be your best option if you are looking for easy access to your funds, the ability to write checks, financial safety, and a competitive interest rate. You should look for a money market account that offers high yields, small fees, online access, low minimum balances, and helpful customer service. You should do your research to find the best money market account to meet your needs.