Tips Money Markets

Investing and Financial Management.

Tips and common Mistakes made on Money Markets :

Tip 1: Be aware of Fees.

As you decide which type of money market account is right for you, if any, look at the potential fees and expenses that can eat away at your investment:

Penalties for falling below the minimum balance requirement
Fees for writing too many checks
New account fees

If you invest in a money market mutual fund, look for one with low annual expenses that won’t drag down your rate of return.

Tip 2: Know your Minimum Investment Amount.

Every type of money market account requires a minimum investment, which is likely to be much higher than with a typical checking account. Your account might be closed if you fall below this established minimum. Furthermore, the money market deposit account through your bank is likely to pay higher interest rates as you deposit more money.

Tip 3: Lock in High Interest Rates with CDs, Instead of Money Market Accounts

Money market accounts and funds are viewed as less risky than many other investments. If you want to lock in a high rate of interest, though, you might be better off with a Certificate of Deposit (CD) or a security you buy directly from the U.S. Treasury.

Tip 4: Write Checks on Your Money Market Account

If you only write a few checks per month, you might be able to utilize a money market account or fund as a checking account. However, some accounts and funds require that the check be above a certain amount.

Common Mistakes

Common Mistake 1: Viewing a Money Market Account as a Long-Term Investment

Your typical money market investment pays a higher interest rate than a savings account. However, as with a savings account, it should generally not be viewed as a long-term investment.

Common Mistake 2: Getting a Promotional Rate

Make sure the interest rate isn’t a come-on to attract new customers. If it is, you may find it will drop after a few months.

Getting Started

You should consider a money market investment if:

You need a place to keep your emergency fund.
You’re putting money aside that you’ll need soon.
You’re building an account to invest at a later date.

Here is a checklist you can use before launching into a money market account:

Compare the interest rates on the various types of money market investments.
Analyze the potential fees you may be required to pay.
Make sure the money market investment offers the features you need, such as the ability to write a certain number of checks each month.
Find out what the minimum balance requirement is and the consequences of going below it.
Ask questions and read the fine print in the literature that describes your investment.

As you compare interest rates, remember that money market mutual funds report the interest over the past seven days and that figure doesn’t include compounding. After you make your decision, you can enroll online, in-person, or by phone.

Question : Am I better off with a money market deposit account through a bank, a cash management account or a money market mutual fund?

If you want absolute safety, a money market deposit account is probably your best investment. Although cash management accounts and money market mutual funds are not insured by the FDIC, they offer extremely high levels of safety. In fact, they often put much of their money in investments guaranteed by the government. Therefore, instead of making your decision based on safety, you should look at which account or fund meets your other needs.

If you’re just getting started, you might choose the account or fund with the lowest minimum balance to qualify for the highest interest rate. Some financial institutions are willing to waive the minimum balance if you agree to invest a small amount automatically each month.