| Questions and Answers about Money Market Mutual Funds |
| Written by William James | |
Are Money Market Mutual Funds safe?In 2008 there were more than 800 different money market funds in the United States. These 800 different funds accounted for about 10 percent of all US mutual funds. The Securities and Exchange Commission has specific guidelines on the type of investments that can be included in a money market mutual fund. These guidelines monitor things like company credit quality, liquidity and diversification.There are federal securities laws that monitor many different aspects of a money market mutual fund. The FCC even provides limits on what kind of investments a money market fund can make. There are still risks and investors have lost money on these funds, but the risks are generally a lot lower than playing in the stock market. What type of investors use Money Market Mutual Fund Accounts?One of the main benefits to utilizing a money market mutual fund is liquidity. This means the money you have in the account can be assessed easily. You can take it out without penalty and add more to many of the accounts without paying commissions or fees. Many investors will use the money market mutual fund accounts as a holding account for other investments they’ve sold and plan to invest somewhere else.Often these money market mutual fund accounts are used for those investors who want to preserve their money, yet still get a better return on investment than a savings account or CD. Yet often the money market mutual fund account offers either an ATM card or checks for easy withdrawal. Is the money in a Money Market Mutual Fund insured?The answer to this is no. Money market mutual funds are not insured like a bank savings account or bank money market deposit account. Neither the Federal Deposit Insurance Corporation nor the National Credit Union Administration insures the money deposited in a money market mutual fund account.Why should I consider a money market mutual fund versus putting my money in a savings account?For one thing…the amount of return on the money you put in a money market mutual fund is often double or more what savings account interest would be. Many savings accounts today have a 1-3% interest, while money market mutual funds often annualize at 15% or higher. Depending on your tax bracket, there are tax-exempt funds that put their investment dollars into municipal and state government bonds and securities.A money market mutual fund generally will allow you to take money out at anytime via a check or ATM card. You are not penalized for withdrawing money as you might be if you took money out of a CD account early. Is there a minimum amount that I must deposit to open a money market mutual fund?The answer to this is it varies. Some accounts require a minimum deposit and some require a minimum balance. But this is account specific. It could be as little as nothing, $500, or more than $2500. Make sure that you understand the account requirements and use these guidelines to compare services.Money market mutual funds can generally be bought and sold at anytime. You are not required to hold on to them for any specific period of time like a certificate of deposit. What else should I look out for if I want to buy into a money market fund?This isn’t a savings account, it is an investment. There are some risks and fees that are associated with this type of an account that you may not be aware of. Make sure you check out the Investment Company or money market mutual fund account and find out how long it has been operating, who manages the fund, and what fees and regulations are applicable.As discussed above, find out if there is a minimum deposit or balance. Then find out if you are restricted to a specific number of withdrawals per month. Ask about the fees associated with the account and if you have to pay them based on the money you put in or the money you take out? Do your research, ask questions and read the fine print. The flexibility, return on investment and overall stability of money market mutual funds may be worth the time it takes to research the options. |
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