What is the Definition of a Money Market?

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A money market is a market where financial institutions, private credit lenders and dealers borrow and lend money. Money markets deal with low-risk, short-term loans such as CDs (Certificate of Deposits), government securities, commercial paper (CP), banker's acceptances, U.S. Treasury bills (T-Bills), repos and more. There are money market funds and money market accounts.

Money Market Account

  • A money market account is a type of savings account offered by banks and credit unions. Like a traditional savings account, money markets are relatively safe, since they are typically FDIC insured. They require a larger deposit (often as least $1000) but offer a higher interest rate.

Money Market Fund

  • A money market fund is a low-risk investment for CDs or government securities. The risks associated with a fund are higher than with a money market account. They're also typically not FDIC insured.

CD

  • A CD is a low-risk (often FDIC insured), fixed rate savings account provided by your bank or credit union that offers a slightly higher interest rate than a traditional savings plan. Typically, a large deposit is required (often at least $1000), which is locked in for a term of 6 months to 5 years. During that time, your money is not accessible, without incurring a penalty.

CP

  • A CP is an extremely short term, unsecured note provided by corporations. They typically last from 30 to 270 days.

T-Bills

  • A T-Bill is a government security sold at a discount in terms anywhere from days to one year. When it matures, you are paid the face value.

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