Money Market Funds

Money Market Mutual Funds (MMF) are offered by banks, brokerages and mutual fund companies. Many people who sell stock place their proceeds in a MMF until they decide where to reinvest their money. But these accounts are excellent places to save money for an emergency fund or for other short-term goals.

No matter where you open a MMF, the accounts are not FDIC insured, so there is a slight risk associated. They often offer better interest rates than basic bank money market accounts.

The reason that the risk with MMFs is so minimal is that they are highly regulated. The money in the fund is invested in very safe, short-term debt securities such as certificates of deposits and U.S. Treasury bills. The goal of the fund is to maintain a share price of $1. There is no guarantee that the fund will maintain its share price, however, consumers haven't lost any money in these funds.

You will pay a fee called the expense ratio. This fee helps to pay the cost of someone to oversee the fund and manage the investments in it. The expense ratio has already been deducted from the advertised yield. It is important to look for a fund with a low expense ratio. Vanguard has a reputation for charging low fees. For example, if their expense ratio is at .30%, then you can expect the industry average to be at .50%. You want to avoid funds that charge above the industry average. You can look in the fund prospectus or on many Web sites to find expense ratio information.

There are two types of money market funds: taxable and tax-free. The taxable funds will usually pay a higher yield, but they aren't for everyone. You can use a tax-equivalent yield formula to see which fund will give you the best overall return.

Most money market funds have a minimum dollar amount. They will allow you to write checks and make electronic transfers. Federal regulation limit electronic, telephone and preauthorized transactions to six per month, with only three by check, draft of debit card. Some institutions may impose a fee if you have a certain amount of withdrawals beyond your account minimum balance.
Martin Lukac - EzineArticles Expert Author

Martin Lukac, represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!