Money Market Accounts vs. Money Market Mutual Funds
They may sound similar, but money market funds and money market accounts are two rather different things. Money market accounts are conservative investments, earnings are low, but then so is the risk, it all depends on your money market rates. Money market mutual funds on the other hand have a potential for high rewards, but also a real chance of negligible earnings.
How do Money Market Funds Work?
Investing in a money market mutual fund can be risky, but the potential rewards are great as well. The bank or brokerage takes your money, puts it into a pool and invests it in several relatively conservative investments such as T-Bills, municipal or government bonds, or even CDs.
Investments are typically standardized so that the maturity date is concurrent at about 9 months. Share prices are kept as $1.00, or at a fixed price. This is a way of keeping the risk reasonably low, and balancing investments, allowing you to earn scaled interest.
The Pros and Cons of Increased Risks
The result is that money market funds have the potential to earn far greater returns than money market accounts. The flipside is, while it is virtually impossible to lose money with a money market account, there is that chance with money market mutual funds, this will happen if the investments made tanked. Actually loss of money though is not likely, and in the event that you do lose money, it won’t be a lot.