Money Markets: A Safe Investment

Personal Finance
a fan of $20 bills symbolizing money markets

A money market is a type of investment that usually deals with commercial paper, treasury bills, bankers’ acceptances, federal funds, and certificates of deposit. Large corporations often choose this method of borrowing to obtain short term loans.

Federal and local governments also rely on this market to solve many of their financing issues. Investors can take advantage of this market as well, and there are a variety of benefits to trading commercial and government paper. Money markets quotes are readily available to investors who are considering purchasing this type of account.

How does it work?

Short term lending is the main focus of this type of trading, and most loans last for 13 months at the most. Large corporations often make use of the money markets rates to receive short term lending, and their credit plays an important role in their ability to secure loans. Local and federal governments also issue paper to secure their financing needs, and a variety of T-bills are held by many people. The huge federal debt is comprised of many of these transactions. Investors can realize good yields on their capital, and most of these investments are highly secure.

The issuance of commercial paper is known for its liquidity. The liquidity of the loan and the short terms that are associated with them are some of the features that make this type of trading a low-risk area. Default does occur in the market, and this is the main risk that is associated with this type of investing. On the whole, this form of trading is much safer than other markets, and most investors choose to keep a certain portion of their portfolios in money markets. There are many firms that enable people to invest in commercial or government paper, and most people trade through a brokerage house. Banks also allow their clients to keep money in this environment, and they will often allow checks to be written against the account.

Rates

Money market rates are variable, but the low risk of this type of investment keeps the yields low. These investments are highly liquid and investors can withdraw their money at any time without incurring a penalty. Most of these investments are also backed by the U.S. government and insured by the FDIC. The internet allows many investors to set up an account in a matter of minutes. Most people prefer to link their money markets with their checking accounts. The internet is a great place to find money market quotes, which is a good way to comparison shop.

Other top money markets include commercial paper. Many of the largest corporations rely on lenders from this sphere. This is a safe investment, and default rarely happens with large, established businesses. Money market rates look even better when a tax-free investment is made. Tax-exempt money markets are readily available, and most governments issue paper that won’t incur capital gains. Investors often choose to keep a certain portion of their portfolio in tax-exempt papers. Tax-free money markets rates help to lower the total burden that investors face from their capital gains. The risk of this type of investment is correlated with the creditworthiness of the issuer. However, most governments are known for being a highly safe form of investing. Municipal bonds and other government forms of paper are some of the top money markets, and most of these allow investors to realize tax savings that enhance the total yield.

© Copyright 2019 Inuvo, Inc.